Question

The financial statements of Garver, Inc., provide the following information for the current year:

	Dec.31				Jan.1
Accounts receivable	$	70,000			$	80,000
Inventory	$	110,000			$	102,000
Prepaid expenses	$	24,000			$	28,000
Accounts payable (for merchandise)	$	66,000			$	64,000
Accrued expenses payable	$	30,000			$	40,000
Net sales	$	520,000
Cost of goods sold	$	260,000
Operating expenses (including depreciation of $36,000)	$	160,000

Compute the cash received from customers during the current year.

a	$530,000
b	$510,000
c	$520,000
d	$ 80,000

Compute the cash payments for purchases of merchandise during the current year.

a	$260,000
b	$250,000
c	$266,000
d	$254,000

Compute the cash payments for operating expenses.

a	$146,000
b	$118,000
c	$162,000
d	$130,000

Answer 1

Cash received from customers = Beginning accounts receivable + Sales - Ending accounts receivable

= $80,000 + $520,000 - $70,000

= $530,000

The answer is a.

Increase in inventory = $110,000 - $102,000 = $8,000

Cash payments = Beginning accounts payable + Increase in inventory + Cost of goods sold - Ending accounts payable

= $64,000 + $8,000 + $260,000 - $66,000

= $266,000

The answer is c.

Decrease in prepaid expenses = $28,000 - $24,000 = $4,000

Decrease in accrued expenses payable = $40,000 - $30,000 = $10,000

Cash payments for operating expenses = ($160,000 - $36,000 for depreciation) - Decrease in prepaid expenses + Decrease in accrued expenses payable

= $124,000 - $4,000 + $10,000

= $130,000

The answer is d.