Question

Star Co. is a retail store specializing in contemporary furniture. The following information is taken from Star's June budget:

Sales ------------------------------------------$540,000
Cost of goods sold ----------------------------300,000
Merchandise inventory-June 1 -----------------150,000
Merchandise inventory-June 30 ---------------180,000
Accounts payable for purchases-June 1 -------85,000
Accounts payable for purchases-June 30 -----75,000

What amount should Star budget for cash disbursements for June purchases?

A.$260,000
B.$280,000
C.$320,000
D.$340,000

Answer 1

To calculate the cash disbursements for June purchases, use the formula Purchases = Cost of goods sold + Increase in merchandise inventory - Increase in accounts payable. The amount Star should budget for cash disbursements for June purchases is $340,000.

Step-by-step explanation:

To calculate the cash disbursements for June purchases, we need to consider the change in merchandise inventory and the change in accounts payable. The formula is Purchases = Cost of goods sold + Increase in merchandise inventory - Increase in accounts payable.

1. Cost of goods sold = $300,000
2. Increase in merchandise inventory = $180,000 - $150,000 = $30,000
3. Increase in accounts payable = $75,000 - $85,000 = -$10,000 (Note: This means the accounts payable decreased)

Using the formula, we have Purchases = $300,000 + $30,000 - (-$10,000) = $340,000. Therefore, the amount Star should budget for cash disbursements for June purchases is $340,000.