Question

Selected data taken from the accounting records of Laser Inc. for the current year ended December 31, are as follows: Balance, December 31 Balance, January 1 Accrued operating expenses $5,590 $6,110 Accounts payable (merchandise creditors) 41,730 46,020 Inventories 77,350 84,110 Prepaid expenses 3,250 3,900 During the current year, the cost of merchandise sold was $448,500, and the operating expenses other than depreciation were $78,000.

The direct method is used for presenting the cash flows from operating activities on the statement of cash flows.

Required:

Determine the amount reported on the statement of cash flows for:

(1) Cash payments for merchandise; and

(2) Cash payments for operating expenses.

Answer 1

1. Cash payments for merchandise is $446,030

2.Cash payment for operating expense is $77,870

Step-by-step explanation:

1. In order to calculate the Cash payments for Merchandise we would have to use the following formula:

Cash payments for Merchandise= cost of goods sold +decrease in accounts payable-decrease in inventory

Cash payments for Merchandise=$448,500+$4,290-$6,760

Cash payment for Merchandise=$446,030

2. In order to calculate the Cash payments for operating expenses we would have to use the following formula:

Cash payment for operating expense=operating expense - decrease in prepaid expense +decrease in Accured

Cash payment for operating expense=$78,000 -$650+$520

Cash payment for operating expense=$77,870