Exercise 12-12 Suppose the 2017 income statement for McDonald\'s Corporation sho
ID: 2566756 • Letter: E
Question
Exercise 12-12 Suppose the 2017 income statement for McDonald's Corporation shows cost of goods sold $4,986.0 milion and operating expenses (induding depreciation expense of $1,163.0 million) $10,465.0 million. The comparative balance sheets for the year shows that inventory decreased $5.6 million, prepaid expenses increased $43.8 million, accounts payable (merchandise suppliers) increased $16.6 million, and accrued expenses payable increased $196.0 million. Using the direct method, compute (a) cash payments to suppliers and (b) cash payments for operating expenses. (a) Cash payments to suppliers (b) Cash payments for operating expenses million million LINK TO TEXTExplanation / Answer
Cost of goods sold = 4986. Inventories decreased by 5.6. This means that purchase of goods were lower than cost of goods sold.
Purchases = 4986 - 5.6 = 4980.4
Again, there is an increase of 16.6 million in accounts payable ( merchandise). This means payment made to suppliers shall be lower than what was purchased.
(a) Cash payments to suppliers = 4980.4 - 16.6 = 4963.8.................final answer
(b) Cash payment for operating expenses = 9149.8 ...............is final answer
Operating expenses ( as given) 10465 (-) Depreciation ( Non cash expenditure) 1163 (+) Increase in prepaid expenses 43.8 (-) Decrease in accured expenses 196 Cash payments for operating expenses 9149.8Related Questions
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