Question

(Appendix 11A) Cash Payments to Suppliers

Blackmon Company reported net income of $805,000 and cost of goods sold of $1,525,000 on its 2019 income statement. In addition, Blackmon reported an increase in inventory of $65,100, a decrease in prepaid insurance of $12,800, and a decrease in accounts payable of $56,790.

Required:

Compute the amount of cash payments to suppliers using the direct method.

Answer 1

The cash payments to suppliers for Blackmon Company in 2019 are calculated to be $1,533,310, using the direct method and adjusting for changes in inventory and accounts payable.

Step-by-step explanation:

To compute the amount of cash payments to suppliers using the direct method, we have to adjust the cost of goods sold figure from the income statement to reflect the changes in inventory and accounts payable. The formula to calculate the cash payments to suppliers is:

Cash Payments to Suppliers = Cost of Goods Sold + Increase in Inventory - Decrease in Accounts Payable

We already have the following numbers from the information provided:

Cost of Goods Sold (COGS): $1,525,000

Increase in Inventory: $65,100

Decrease in Accounts Payable: $56,790

Now, we perform the calculation:

Cash Payments to Suppliers = $1,525,000 + $65,100 - $56,790 = $1,533,310

Therefore, the cash payments to suppliers for Blackmon Company during the year 2019 amount to $1,533,310.