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Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred.Amounts for 2012 are:

-Customer amounts on account are collected 70% in the month of sale and 30% in the following month.
-Cost of goods sold is 60% of sales.
-Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month.
-Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000;
-Accounts payable is used only for inventory acquisitions.
-How much is Livanos' budgeted balance for Accounts Payable at May 30, 2012?

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Use the following information for questions 
Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred.Amounts for 2012 are:
  
-Customer amounts on account are collected 70% in the month of sale and 30% in the following month.
-Cost of goods sold is 60% of sales.
-Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month.
-Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000;
-Accounts payable is used only for inventory acquisitions.
-How much is Livanos' budgeted balance for Accounts Payable at May 30, 2012?

Quizplus · Accepted Answer

Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month. Therefore, the purchases made in May will be paid 60% in June. Total purchases of Livanos, Inc. in May = Cost of goods sold/40% x 60% = ($250,000/0.4) x 0.6 = $150,000 Therefore, the amount Livanos, Inc. needs to pay in June for purchases made in May is $150,000 x 60% = $<<150000*0.6=90000>>90,000 Hence, the budgeted balance for Accounts Payable at May 30, 2012, will be $150,000 - $90,000 = $<<150000-90000=60000>>60,000. Multiplying this by 2, since this represents only 40% of the invoice amount, we get $60,000 x 2 = $<<60000*2=120000>>120,000. This is the amount the company owes in accounts payable at May 31. To determine the amount it owes on May 30, we need to compute the daily payables, which are $120,000/30 days. This equals $4,000. Therefore, the budgeted balance for Accounts Payable at May 30, 2012, will be: $120,000 - ($4,000 x 1) = $<<120000-4000=116000>>116,000. Rounded off to the nearest hundred, the answer is $<<116000=116000>>116,000. Therefore, the best choice is (D) $76,800.

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