Bongo Company reports a $25,000 increase in inventory and a $10,000 decrease in accounts
payable during the year. Cost of Goods Sold for the year was $180,000. Using the direct method
of reporting cash flows from operating activities, cash payments made to suppliers were
$180,000.
$190,000.
$215,000.
$135,000.
Solution
Solution - 215,000
Workings
Cash payments to Suppliers = Purchases + Beginning A/P - Ending A/P
= 205,000 + 10,000 = 215,000
Calculating purchases:
Cost of goods sold = Beginning Inventory + Purchases - Ending Inventory or
Purchases = Cost of goods sold + Ending Inventory - Beginning Inventory
There is an increase in Inventory, hence Ending inventory - Beginning Inventory = 25,000 and
Cost of goods sold is given as 180,000. Purchases = 180,000+25,000 = 205,000
Calculating Beginning a/p - ending a/p:
There is a 10,000 decrease in a/p whihc means 'Beginning a/p - ending a/p = 10,000'