ABC Inc. has an 59-day average payables period. The account payables are $2,737.50 at the beginning and $3,589.50 at the end of the covering year. What is the annual cost of goods sold? Use a 365-day year when calculating the APP.
A) $17,265
B) $18,992
C) $19,571
D) $20,123

Question

Quizplus · Accepted Answer

Average Accounts Payable = (Beginning AP + Ending AP) / 2
Average Accounts Payable = ($2,737.50 + $3,589.50) / 2 = $3,163.50

Annual Cost of Goods Sold = Average Accounts Payable x 365 / Average Payables Period
Annual Cost of Goods Sold = $3,163.50 x 365 / 59 = $19,570.89

Rounding to the nearest dollar, the answer is C, $19,571.

ABC Inc Has an 59-Day Average Payables Period