Stanner Company's 2014 income statement reported cost of goods sold as $135,000.Additional information is as follows: If Stanner uses the direct method,what amount should Stanner report as cash paid to suppliers in its 2014 statement of cash flows?

Question

Stanner Company's 2014 income statement reported cost of goods sold as $135,000.Additional information is as follows:  If Stanner uses the direct method,what amount should Stanner report as cash paid to suppliers in its 2014 statement of cash flows?

Quizplus · Accepted Answer

To calculate cash paid to suppliers using the direct method, we need to adjust cost of goods sold for changes in inventory and accounts payable. 
Given information:
Cost of goods sold = $135,000
Change in inventory = -$14,000 (inventory decreased, so we add this amount to cost of goods sold)
Change in accounts payable = $28,000 (accounts payable increased, so we subtract this amount from cost of goods sold)

Using the direct method formula:
Cash paid to suppliers = Cost of goods sold + Increase in inventory - Increase in accounts payable
Cash paid to suppliers = $135,000 - $14,000 + $28,000
Cash paid to suppliers = $149,000

Therefore, the correct answer is C.

Stanner Company's 2014 Income Statement Reported Cost of Goods Sold