[Anonymous]

so i got this as a question in Wiley tb

“Duke Co. reported cost of goods sold of $270,000 for year 2. Additional information is as follows:

December 31, year 2 January 1, year 1

Inventory $60,000 $45,000

Accounts payable 26,000 39,000

if duke uses the direct method, what amount should duke report as cash paid to suppliers in its year 2 statement of cash flows?”

Okay so after spending 30 minutes trying to figure out how to work this, and drawing T accounts, and working formulas, i realize there is no way possible, that i could figure out anyway. So i pick the answer as though this was a one year problem not a 2 year problem: $298,000 and it was correct. So I assume this is just a typo, or something in the wiley questions. Is this correct? This is the 3 typo i have run into an am just making sure the actual exam wont expect me to infer that they have a typo will it?

[J]

I think the problem means that the beginning information is for January 1, Year 2 (otherwise you don't have sufficient information to understand what happened in Year 1); if that's the case, it's a relatively simple problem to solve. Some people use T-accounts for this kind of stuff; I prefer worksheet journal entries.

Remember, the SCF is basically reverting back to the cash basis of accounting. Think about the information that is given. You know that COGS on the accrual basis is 270,000. You also know that there is an increase in Inventory of 15,000 and a decrease in A/P of 13,000. You want to determine cash paid (so a cash outflow, which is a credit). Just set up a J.E. with the known information and plug for cash:

Db. COGS 270,000

Db. Inventory 15,000

Db. A/P 13,000

Cr. Cash 298,000

I don't know if your question was dealing with how to solve it or just the fact that it was a typo, but I thought that I would throw it out there anyway…

[Anonymous]

yeah i know how to solve it assuming it is a typo, but just wanted to make sure that there wasnt some magical nonsense way of assuming an average for year one or something…. so you are with me then, that is a typo… the actual exam wont have this crap right?

cause that would be a huge time chunk that i wasted.

[Author]

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