Question

Assume a merchandising company’s estimated sales for January, February, and March are $100,000, $120,000, and $110,000, respectively. Its cost of goods sold is always 40% of its sales. The company always maintains ending merchandise inventory equal to 10% of next month’s cost of goods sold. It pays for 25% of its merchandise purchases in the month of the purchase and the remaining 75% in the subsequent month. What is the accounts payable balance at the end of February?

Multiple Choice

• $35,700

• $11,900

• $30,600

• $31,600

Answer 1

Answer : A = $ 35,700

>> February cost of goods sold = $ 120,000 * 40 %

>> February cost of goods sold = $ 48,000

>> February Ending inventory = $ 110,000 * 40 % * 10 %

>> February Ending inventory = $ 4,400.

>> February Beginning inventory = $ 48,000 * 10 %

>> February Beginning inventory = $ 4,800.

>> February Purchases = COGS + Closing inventory - Opening inventory

>> February Purchases = $ 48,000 + $ 4,400 - $ 4,800

>> February Purchases = $ 47,600.

>> Payable at end of February = $ 47,600 * 75 %

>> Payable at end of February = $ 35,700.