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Effects of Transactions Involving Inventories on t

Effects of Transactions Involving Inventories on the Statement of Cash Flows Indirect MethodRefer to all of the facts in Exercise 5-18.RequiredAssume instead that Masthead uses the indirect method to prepare its statement of cash flows.Indicate how each item will be reflected as an adjustment to net income in the OperatingActivities category of the statement of cash flows.Exercise 5-18Effects of Transactions Involving Inventories on the Statement of Cash Flows Direct MethodMasthead Company’s comparative balance sheets included inventory of $180,400 at December31, 2007, and $241,200 at December 31, 2008. Masthead’s comparative balance sheets alsoincluded accounts payable of $85,400 at December 31, 2007, and $78,400 at December 31, 2008.Masthead’s accounts payable balances are composed solely of amounts due to suppliers for purchasesof inventory on account. Cost of goods sold, as reported by Masthead on its 2008 incomestatement, amounted to $1,200,000RequiredWhat is the amount of cash payments for inventory that Masthead will report in the OperatingActivities category of its 2008 statement of cash flows assuming that the direct method is used?

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