In its 2013 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2013, 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.

Question

Quizplus · Accepted Answer

The cost of goods sold is $440,000, but WME paid only $380,000 to suppliers, indicating an increase in accounts payable of $60,000. The inventory decreased by $41,000, so the net effect is a $19,000 increase in accounts payable, which is a positive adjustment to net income under the indirect method.

In Its 2013 Income Statement, WME Reported $440,000 for the Cost