Question

Use the​ "percent of sales​ method" of preparing pro forma financial statements to determine the projection for next​ year's accounts payable. Make the following​ assumptions: current​ year's sales are​ $27,800,000; current​ year's cost of goods sold is​ $17,528,000; sales are expected to rise by​ 30%. The​ firm's investment in accounts payable in the current year is​ $2,218,500. What is the projection for next​ year's accounts​ payable? A. ​$3,781,750 B. ​$4,184,000 C. ​$2,127,000 D. ​$2,884,050

Answer 1

option (D) $2,884,050

Step-by-step explanation:

Data provided in the question:

current​ year's sales =​ $27,800,000

Current​ year's cost of goods sold =​ $17,528,000

Sales for the next year = current​ year's sales + 30% current​ year's sales

= $27,800,000 + 0.30 × $27,800,000

= $36,140,000

Accounts payable in the current year =​ $2,218,500

Now,

Percentage of Account payable to sales for the current year

= [Accounts payable in the current year ÷ current​ year's sales] × 100%

= [ $2,218,500 ÷ $27,800,000 ] × 100%

= 7.98%

This will be same for the next year

therefore,

Percentage of Account payable to sales for the next year

= [Accounts payable in the next year ÷ next ​ year's sales] × 100%

or

7.98% = [ Accounts payable in the next year ÷ $36,140,000 ] × 100%

or

Accounts payable in the next year = 0.0798 × $36,140,000

= 2,884,050

Hence,

The correct answer is option (D) $2,884,050