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29 October, 14:33

Each year, Grey Mountain Enterprises (GME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2021 income statement, GME reported $440,000 for the cost of goods sold. GME paid inventory suppliers $380,000 in 2021, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, GME should:

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  1. 29 October, 18:16
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    The GME should reveal or provide a $19,000 an adjustment positive to net income under the indirect method for the increase in accounts payable.

    Explanation:

    Solution

    Given that:

    The Cost of goods sold = $440,000

    Less: Inventory balance decrease = $41000

    Thus,

    The cost of goods - Inventory balance decrease is given as:

    $440000-$41000 = $399000

    So,

    The Inventory purchases during the period = $399000 and the Less: Payment to inventory suppliers = $380000

    The increase in accounts payable is calculated as follows:

    The inventory purchases during the period - payment to inventory suppliers

    =$399000 - $380000 = $19,000

    Hence,

    The Increase in accounts payable (Current Liabilities) is reported as a positive adjustment to net income under the indirect method

    This provide a $19,000 adjustment positive to net income under the indirect method for the increase in accounts payable.
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