If a Company Uses the Direct Method to Prepare the Statement

question 142

Multiple Choice

If a company uses the direct method to prepare the statement of cash flows, how will the amount of cash purchases of inventory be computed?

• A)The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory.
• B)The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory plus beginning inventory.
• C)The amount of cash purchases of inventory is computed as beginning inventory minus ending inventory minus cost of goods sold.
• D)The amount of cash purchases of inventory is computed as cost of goods sold plus ending inventory minus beginning inventory.

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Definitions:

Loss On Bond Conversion

An accounting entry that represents the difference when the conversion of debt into stock is at a value lower than its market price.

Straight-line Amortization

The method of gradually reducing the cost of an intangible asset over its useful life in a uniform manner.

Market Value Method

The market value method is a valuation method used to assess the value of an asset based on its current market price.

Bond Conversion

The process of converting a convertible bond into a specific number of shares of the issuer's common stock.