The Richburn Manufacturing Company increased its merchandise inventory by $17,000 over the year.The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500.Sales were $975,000 and the accounts payable decreased by $27,500.The gross profit on sales is 45%.Selling and administrative expenses were $145,000; this included depreciation expense of $4,000.What were the cash disbursements for the year?

Question

Quizplus · Accepted Answer

The correct answer is A because the cash disbursements for the year can be calculated as follows:Sales - (Beginning merchandise inventory + Increase in merchandise inventory) - (Beginning accounts receivable + Increase in accounts receivable) + (Beginning accounts payable - Decrease in accounts payable) - Selling and administrative expenses + Depreciation expense = Cash disbursements$975,000 - ($17,000) - ($37,500) + ($27,500) - $145,000 + $4,000 = $721,750

The Richburn Manufacturing Company Increased Its Merchandise Inventory by $17,000