The Beatrice 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%. Marketing and administrative expenses were $145,000; this included depreciation expense of $4,000. What were the cash disbursements for the year?

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The correct answer is A.The cash disbursements for the year can be calculated as follows:Sales - Gross profit = Cost of goods sold$975,000 - (45% x $975,000) = $536,250Cost of goods sold + Increase in merchandise inventory - Decrease in accounts payable = Purchases$536,250 + $17,000 - $27,500 = $525,750Purchases + Marketing and administrative expenses - Depreciation expense = Cash disbursements$525,750 + $145,000 - $4,000 = $721,750

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