Bent Company reports a $20,000 increase in inventory and a $5,000 decrease in accounts payable during the year. Cost of Goods Sold for the year was $170,000. Using the direct method of reporting cash flows from operating activities, cash payments made to suppliers were
A) $170,000.
B) $185,000.
C) $195,000.
D) $155,000.

Question

Quizplus · Accepted Answer

To calculate cash payments to suppliers using the direct method, adjust the Cost of Goods Sold (COGS) by changes in inventory and accounts payable. Start with COGS of $170,000, add the $20,000 increase in inventory (indicating more cash was used to purchase inventory), and subtract the $5,000 decrease in accounts payable (indicating less cash was paid to suppliers). Thus, cash payments to suppliers = $170,000 + $20,000 - $5,000 = $195,000.

Bent Company Reports a $20,000 Increase in Inventory and a $5,000