The following information is reported in the Operating Activities category of Gateway's statement of cash flows for 2017: ?
$$\begin{array} { l r }
\text { Net income } & \$ 1,200,000 \
\text { Increase in inventories } & 600,000 \
\text { Decrease in accounts payable related to inventories } & 400,000
\end{array}$$ Which one of the following conclusions can be assumed from the information provided?
A)Gateway used the direct method to determine cash flows from operating activities.
B)Gateway purchased more merchandise than it sold in 2017.
C)Cash payments for merchandise purchases were less than the amount of merchandise purchased on credit during 2017.
D)Cash payments for merchandise exceeded cost of goods sold by $200,000.

Question

The following information is reported in the Operating Activities category of Gateway's statement of cash flows for 2017: ?
$$\begin{array} { l r } 
\text { Net income } & \$ 1,200,000 \
\text { Increase in inventories } & 600,000 \
\text { Decrease in accounts payable related to inventories } & 400,000
\end{array}$$ Which one of the following conclusions can be assumed from the information provided?
A)Gateway used the direct method to determine cash flows from operating activities.
B)Gateway purchased more merchandise than it sold in 2017.
C)Cash payments for merchandise purchases were less than the amount of merchandise purchased on credit during 2017.
D)Cash payments for merchandise exceeded cost of goods sold by $200,000.

Quizplus · Accepted Answer

The increase in inventories and the decrease in accounts payable suggest that Gateway purchased more merchandise than it sold, as inventory levels rose and accounts payable decreased, indicating payments were made for past purchases.

The Following Information Is Reported in the Operating Activities Category