Question

A firm bought $10,000 worth of inventory using half cash and half accounts payable. Which of the following statements are true?

[select all that apply]

Question 18 options:

A)	total liabilities would increase

B)	inventory in the balance sheet would decrease

C)	inventory in the balance sheet would increase

D)	net income would decrease

E)	total assets would decrease

F)	in the statement of cash flows inventory would be entered as a negative number

G)	in the statement of cash flows increase in accounts payable would be entered as a positive number

H)	total assets would increase

I)	in the statement of cash flows increase in accounts payable would be entered as a negative number

J)	in the statement of cash flows inventory would be entered as a positive number

Answer 1

A)	total liabilities would increase

C)	inventory in the balance sheet would increase

F)

in the statement of cash flows inventory would be entered as a negative number

G)	in the statement of cash flows increase in accounts payable would be entered as a positive number

H)	total assets would increase

Working:

Inventory worth $ 10,000 would be increased by paying $ 5,000 cash.So, Net $ 5,000 would be increase in Assets ( $ 10,000-$ 5,000). So, Total Assets would be increased.Accounts Payable would be increased by $ 5,000.So, Total Liabilities would also be increased.For the purpose of cash flow statement, $ 5,000 cash would be decreased for buying inventory.So, in Cash flow statement Inventory would be shown as Negative as it reduced cash and Accounts Payable would be shown as positive.