Question

LaRoe Lawns’ inventory increased during the year by $5.2 million. Its accounts payable increased by $4.2 million during the same period.

Required:
What is the amount of cash LaRoe paid to suppliers of merchandise during the reporting period if its cost of goods sold was $34 million? Prepare a summary entry that represents the net effect of merchandise purchases during the reporting period.

Answer 1

Solution:

1) Cash LaRoe paid to suppliers of merchandise = $ 35 Millions

2) Summary Entry:

Description	Debit	Credit
Cost of goods sold	$           34.00
Inventory	$              5.20
Cash		$             35.00
Accounts Payable		$               4.20
(To record merchandise purchases)

Notes:

1) Cash LaRoe paid to suppliers of merchandise = Purchases + [Opening Accounts Payable - Closing Accounts Payable ]

= $ 39.2 Millions - $ 4.2 Million = $ 35 Millions

2) Purchases = Cost of goods sold + Closing Stock - Opening Stock = $34 Million + $ 5.2 Million = $ 39.2 Millions