Question

A company's Inventory balance at the end of the year was $197,000 and $210,000 at at the beginning of the year. Its Accounts Payable balance at the end of the year was $94,000 and $89,000 at the beginning of the year, and its cost of goods sold for the year was $730,000.

The company's total amount of cash payments for merchandise during the year equals:


a. 712,000

b.748,000

c. 738,000

d. 730,000

e. 722,000

Answer 1

c. 738,000

Step-by-step explanation:

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

The movement in the accounts payable balance at the start and end of an accounting period is due to cash payments, and additional credit purchases.

This may be expressed mathematically as

opening balance + purchases - cash paid = closing balance

Hence,

197,000 + purchases - 730,000 = 210,000

purchases = 210,000 + 730,000 - 197,000

= $743,000

Using the payables equation,

89,000 + 743,000 - cash paid = 94,000

Cash paid = 89,000 + 743,000 - 94,000

= $738,000