The following information is available for Kent Company Year 2. Net income, Year 2$280,000 Inventory, 1/1/Year 2 300,000 Inventory, 12/31/Year 2 260,000 Cost of goods sold, Year 2 1,500,000 Accounts payable, 1/1/Year 2 180,000 Accounts payable, 12/31/Year 2 230,000 Required:1) What amount of cash was paid for the purchase of merchandise?2) How will the above items be shown on the statement of cash flows using the indirect method?3) How will the amount computed in 1) be shown on the statement of cash flows using the direct method?
What will be an ideal response?
1.
| Inventory purchased: | |||
| Inventory sold | $ | 1,500,000 | |
| Less decrease in inventory | (40,000 | ) | |
| Total merchandise purchased | $ | 1,460,000 | |
| Less increase in accounts payable | (50,000 | ) | |
| Total cash paid for merchandise | $ | 1,410,000 |
2.
| Net income | $ | 280,000 | |
| Decrease in inventory | 40,000 | ||
| Increase in accounts payable | 50,000 |
3.
| Cash flow from operating activities | |||
| Cash payment for inventory | $ | (1,410,000 | ) |
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