Question

The cost of goods sold during the year was $55,778. Inventories were $12,186 and $8,100 at the beginning and end of the year, respectively. Accounts payable (all owed to merchandise suppliers) were $5,923 and $3,825 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total:

A) $51,130
B) $56,836
C) $61,778
D) $58,008

Answer 1

The cash payments for merchandise total $57,766.

Step-by-step explanation:

To calculate the cash payments for merchandise during the year using the direct method, we need to consider the change in inventories and accounts payable.

Step 1: Calculate the change in inventories by subtracting the ending inventory ($8,100) from the beginning inventory ($12,186).

Change in Inventories = $12,186 - $8,100 = $4,086

Step 2: Calculate the change in accounts payable by subtracting the ending accounts payable ($3,825) from the beginning accounts payable ($5,923).

Change in Accounts Payable = $5,923 - $3,825 = $2,098

Step 3: Calculate the cash payments for merchandise by subtracting the change in inventories from the cost of goods sold and adding the change in accounts payable.

Cash Payments for Merchandise = Cost of Goods Sold + Change in Inventories - Change in Accounts Payable

= $55,778 + $4,086 - $2,098

= $57,766

Therefore, the cash payments for merchandise total $57,766.