Exercise 17-11 Suppose a recent income sattement for McDonald\'s Corporation sho

Question

Exercise 17-11

Suppose a recent income sattement for McDonald's Corporation shows cost of goods sold $5,580.6 million and operating expenses (including depreciation expense of $1,381 million) $12,272.2 million. The comparative balance sheet for the year shows that inventory increased $20.8 million, prepaid expenses increased $64.7 million, accounts payable (merchandise suppliers) increased $157.4 million, and accrued expenses payable increased $185.0 million.

1. Using the direct method compute cash payments to suppliers

2. Using the direct method compute cash payments for operating expenses.

Explanation / Answer

Payments to suppliers:

2. Using the direct method compute cash payments for operating expenses

Increase in inventory is added because it represents purchases.
Increase in accounts payable is deducted because such amount is included in
cost of goods sold but not paid yet.

Depreciation is deducted because it is a non - cash expense.
Increase in prepaid expenses means a prepaid asset has been
bought so it must be added.
Accrued expenses payable is deducted because it is included in operating expenses though no payment has been made yet

Cost of goods sold $5,580.60 million Add: Increased in inventory $20.80 million Less: Increase in accounts payable $157.4 million Total payments to suppliers 5,444

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