In its 2009 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2009, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, WME should:
A)Show a $19,000 positive adjustment to net income under the indirect method for the increase in accounts payable.
B)Show a $19,000 positive adjustment to net income under the indirect method for the decrease in accounts payable.
C)Show a $19,000 negative adjustment to net income under the indirect method for the increase in accounts payable.
D)Show a $19,000 negative adjustment to net income under the indirect method for the decrease in accounts payable.Decrease in inventory balance by $41,000 indicates that purchases were less than cost of goods sold by $41,000, totaling $399,000.If cash paid to suppliers was $380,000, accounts payable increased by $19,000.

Question

Quizplus · Accepted Answer

The decrease in inventory indicates that purchases were less than the cost of goods sold, and since the cash paid was less than the purchases, accounts payable increased by $19,000. This increase in accounts payable is a source of cash, leading to a positive adjustment to net income.

In Its 2009 Income Statement, WME Reported $440,000 for the Cost