Effects of Transactions Involving Inventories on the Statement of Cash Flows— Indirect Method…

Effects of Transactions Involving Inventories on the Statement of Cash Flows— Indirect Method…

Effects of Transactions Involving Inventories on the Statement of Cash Flows—

Indirect Method

Refer to all of the facts in Exercise 5-18.

Required

Assume instead that Masthead uses the indirect method to prepare its statement of cash flows.

Indicate how each item will be reflected as an adjustment to net income in the Operating

Activities category of the statement of cash flows.

Exercise 5-18

Effects of Transactions Involving Inventories on the Statement of Cash Flows—

Direct Method

Masthead Company’s comparative balance sheets included inventory of $180,400 at December

31, 2007, and $241,200 at December 31, 2008. Masthead’s comparative balance sheets also

included accounts payable of $85,400 at December 31, 2007, and $78,400 at December 31, 2008.

Masthead’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 Masthead on its 2008 income

statement, amounted to $1,200,000

Required

What is the amount of cash payments for inventory that Masthead will report in the Operating

Activities category of its 2008 statement of cash flows assuming that the direct method is used?

 

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