Springfield Company’s comparative balance sheets included inventory of $89,700 a

Question

Springfield Company’s comparative balance sheets included inventory of $89,700 at December 31, 2016, and $73,300 at December 31, 2017. Springfield’s comparative balance sheets also included accounts payable of $54,400 at December 31, 2016, and $38,100 at December 31, 2017. Springfield’s accounts payable balances are composed solely of amounts due to suppliers for purchases of inventory on account. Cost of goods sold, as reported by Springfield on its 2017 income statement, amounted to $750,800. What is the amount of cash payments for inventory that Springfield will report in the Operating Activities section of its 2017 statement of cash flows assuming that the direct method is used?

$

Explanation / Answer

Assuming all purchases are on credit, we have -

Credit Purchases = Opening Inventory + Cost of goods sold - Closing inventory

or, Credit Purchases = $89,700 + $750,800 - $73,300 = $767,200

Now, Cash payments = Opening accounts payable + Credit purchases - Closing accounts payable

or, Cash payments = $54,400 + $767,200 - $38,100 = $783,500

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