Spa Company Uses the Direct Method in Determining Net Cash

question 114

Multiple Choice

Spa Company uses the direct method in determining net cash provided by operating activities. The income statement shows income tax expense $85000. Income taxes payable were $35000 at the beginning of the year and $20000 at the end of the year. Cash payments for income taxes are

• A) $70000.
• B) $85000.
• C) $100000.
• D) $140000.

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Definitions:

Standard Direct Materials

The budgeted cost for direct materials which are the raw materials that can be directly attributed to the production of goods, used for budgeting and performance evaluation.

Actual Materials Price

The real cost incurred to acquire materials used in the production process, as opposed to the budgeted or standard cost.

Standard Price

A predetermined cost assigned to materials, used for budgeting and variance analysis.

Standard Direct Materials

The predetermined cost and quantity of raw materials required for the production of a unit of product under normal conditions.