75. An analyst gathers the following information from a company’s current financial
statements:
Cash Flow Statement for Year Ended 31 December ($ millions)
Net income
2,520
Depreciation
1,178
Change in accounts receivable
(62)
Change in accounts payable
295
Change in inventory
(792)
Operating cash flow
3,139Income Statement for Year Ended 31 December ($ millions)
Revenue
26,430
Cost of goods sold
12,831
Operating expenses
9,802
Income tax expense
1,277
Net income
2,520
If the company uses the direct method to prepare its cash flow statement, the cash paid to suppliers (in $ millions) will be closest to:
A. 12,334.
B. 13,328.
C. 12,536.
Solution
B is correct. The cash paid to suppliers is calculated as follows:
$ Millions
Cost of goods sold
12,831
Plus: Increase in inventory
792
Purchases
13,623
Less: Increase in accounts payable
295
Cash paid to suppliers
13,328
