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Basic Question 4 of 11
Pelton Signal Manufacturing, Inc. has the following information from its year-end financial statements, which are prepared under the accrual basis. On the balance sheet, Pelton reports Inventory, Year 1, $10,000; Inventory, Year 2, $8,000; Accounts Payable, Year 1, $2,000; Accounts Payable, Year 2, $6,000. Year 2 Cost of Goods Sold on the income statement is $60,000. How much cash did Pelton pay for inventory purchases in Year 2?
B. $60,000
C. $66,000
A. $54,000
B. $60,000
C. $66,000
User Contributed Comments 9
| User | Comment |
|---|---|
| i020757 | 60000 + (8000-10000) - (6000-2000) = 54000 |
| gjwhite | I agree with io20757: ending inventory = beginning inventory + purchases -cogs, therefore we have: 8k = 10k + purchases - 60k => purchases = 58k But, change in accounts payable is a 4k increase, hence, CASH purchases = 58k -4k = 54k |
| Lucho | P=60-10+8 .........from COGS equation P=58 Cash flow purchases= 58-4= 54 |
| AlexYuen | 58k (outflow) - 4k(inflow) = 54k (outflow) |
| MMattioli | -60000(COGS) + 2000(inventory) + 4000(AP) = -54000 |
| Murrayman | The $2,000 in inventory was paid for in cash in a previous period but was nonetheless sold and included on the income statement in the COGS figure for this period. It needs to be removed from the COGS number in order to reconcile to cash paid in the current period. |
| surjoy | BInv + Purchases - COGS = EInv BAccPay + Purchases - Cash Paid = EAccPay 10000 + Purchases - 60000 = 8000, Purchases = 58000 Sub purchases in Eq 2; Cash Paid = 2000 - 6000 + 58000 = 54000 |
| wankoo | Simple and Good explanation MMattioli. Cash inflow= +2000(inv.) and +4000(AP) Cash Outflow= -60000(COGS) Question: How much cash spent? or what's the cash outflow? -60000+2000+4000= -54000 |
| vatsal92 | Follow MMattioli. |
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Learning Outcome Statements
describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data
CFA® 2024 Level I Curriculum, Volume 2, Module 4.