Question

In its income statement, Fox Co. reported cost of goods sold of $540,000. Changes occurred in several balance sheet accounts as follows:

Inventory $40,000 increase

Accounts payable-suppliers 160,000 increase

What amount should Fox report as cash paid to suppliers in its cash flow statement, prepared under the direct method?

Answer 1

$420,000

Step-by-step explanation:

Operating activities: Under the direct method, the cash receipts like collections, should be added whereas the cash payments like wages and salaries are deducted

The computation of the cash paid to supplier is shown below:

= Reported costs of goods sold + increase in inventory - increase in account payable

= $540,000 + $40,000 - $160,000

= $420,000

The increase in inventory reflect that the inventory was bought but not included in this year whereas the increase in account payable indicate that the amount was paid in this year regarding purchase of inventory