Under the Direct Method of Preparing the Statement of Cash

question 44

Multiple Choice

Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?

• A)Cost of goods sold less a decrease in inventory plus an increase in accounts payable.
• B)Cost of goods sold plus an increase in inventory less an increase in accounts payable.
• C)Cost of goods sold plus an increase in inventory plus an increase in accounts payable.
• D)Cost of goods sold plus a decrease in inventory plus an increase in accounts payable.

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Definitions:

Price Floor

A government or regulatory-imposed minimum price set above the equilibrium market price, aimed at ensuring that the market price of a good or service cannot fall below a certain level.

Shortage

A market condition where the demand for a product exceeds the supply at a given price, often leading to higher prices.

Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded at the current price.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.