Parmesan Company Uses the Direct Method for Its Statement of Cash

question 146

Multiple Choice

Parmesan Company uses the direct method for its statement of cash flow. It reports the following information regarding the year 2013:
$$\begin{array}{l}\text { From the income statement: }\\\begin{array} { l r } \text { Revenues: } & \$ 240,000 \\\text { Cost of goods sold: } & \$ 190,000 \\\text { Operating expenses: } & \$ 25,000\end{array}\\\begin{array} { c c c } \text { From the balance sheet: } & \text { Beginning balance } & \text { Ending balance } \\\text { Accounts receivable: } & \$ 12,000 & \$ 15,000 \\\text { Inventory: } & \$ 22,000 & \$ 18,000 \\\text { Accounts payable: } & \$ 7,000 & \$ 12,000 \\\text { Accrued liabilities: } & \$ 3,000 & \$ 1,200\end{array}\end{array}$$
- On the statement of cash flows, what amount will be shown for payments to suppliers for inventory purchases? (Please assume that accounts payable are for purchases of inventory only.)

• A) $185,000
• B) $194,000
• C) $181,000
• D) $191,000

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Definitions:

Financial Statements

Summary reports that convey the financial activities and condition of a business or individual.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts.

Contra Asset Account

An account that is used to reduce the balance of a related asset account to reflect its adjusted carrying value.