Question

Boone Ltd reports the following:

Inventory End of year $25,000, Beginning of year $40,000
Accounts payable End of year $30,000, Beginning of year $10,000

If cost of goods sold for the year is $150,000, the amount of cash paid to suppliers is
Select one:
a. $185,000
b. $145,000
c. $115,000
d. $155,000

Answer 1

The amount of cash paid to suppliers by Boone Ltd is $155,000 (Option D).

Step-by-step explanation:

To determine the cash paid to suppliers, we can use the formula:

Cash Paid to Suppliers = Cost of Goods Sold (COGS) + Increase in Accounts Payable

The COGS is given as $150,000. The increase in accounts payable is calculated as the difference between the end-of-year and beginning-of-year accounts payable. Mathematically, it is expressed as:

Increase in Accounts Payable= Accounts Payable End of Year - Accounts Payable Beginning of Year

Substituting the given values:

`\[ \text{Increase in Accounts Payable} = $30,000 - $10,000 = $20,000 \]`

Now, use the formula:

`\[ \text{Cash Paid to Suppliers} = \text{COGS} + \text{Increase in Accounts Payable} \]`

`\[ \text{Cash Paid to Suppliers} = $150,000 + $20,000 = $170,000 \]`

However, this represents the total payments and includes both cash and credit transactions. To find the cash paid, we need to consider the decrease in inventory, which is the difference between the beginning-of-year and end-of-year inventory. The decrease in inventory is $40,000 - $25,000 = $15,000. Subtracting this from the total payments:

`\[ \text{Cash Paid to Suppliers} = $170,000 - $15,000 = $155,000 \]`

Therefore, the correct amount of cash paid to suppliers is $155,000 (Option D).