Cash Payments—Direct Method Appleton Enterprises\' comparative balance sheets in

Question

Cash Payments—Direct Method

Appleton Enterprises' comparative balance sheets included inventory of $90,200 at December 31, 2013, and $70,600 at December 31, 2014. Appleton's comparative balance sheets also included accounts payable of $52,200 at December 31, 2013, and $38,300 at December 31, 2014. Appleton'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 Appleton on its 2014 income statement, amounted to $770,900.

What is the amount of cash payments for inventory that Appleton will report in the Operating Activities section of its 2014 statement of cash flows assuming that the direct method is used?

$

Explanation / Answer

Assuming that the direct method of accounting for cash flows is used : (Values in $)

Opening Inventory = 90,200

Cost of Goods Sold = 770,900

Closing Inventory = 70,600

Hence, Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory

Purchases = 70,600 + 770,900 - 90,200 = 751,300 $

Opening Acccounts Payable ( for closing purchases of 2013) = $ 52,200

Closing Accounts Payable (for closing purchases of 2014) = $ 38,300

Hence, amounts paid for inventory = $ 52,200 + $ 751,300 - $ 38,300 = $ 765,200.

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