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Q29E

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 781

Short Answer

Question: Computing cash flow items—direct method Consider the following facts:

  1. Beginning and ending Accounts Receivable are $24,000 and $20,000, respectively. Credit sales for the period total $68,000.
  2. Cost of goods sold is $77,000.
  3. Beginning Merchandise Inventory balance is $29,000, and ending Merchandise Inventory balance is $26,000.
  4. Beginning and ending Accounts Payable are $12,000 and $16,000, respectively.

Requirements

  1. Compute cash collections from customers.
  2. Compute cash payments for merchandise inventory

Answer

Requirement 1: Cash collection =$72,000

Requirement 2: Cash payment for merchandise inventory =$70,000

See the step by step solution

Step by Step Solution

Step 1: Calculation of cash collections from customer

Cash Collection = Opening account receivable + Credit sales for the period – Closing account receivables

=$24,000+$68,000-$20,000

=$72,000

Step 2: Computation of cash payments for merchandise inventory

Cash Payments for inventory = Cost of goods sold – Beginning merchandise inventory + Closing merchandise inventory + Beginning accounts payable – Closing accounts payable

=$77,000 – 29,000+ $26,000 + 12,000 – $16,000

=$70,000

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