Geographic Enterprise's Inventory account decreased $37,500 and its Accounts Payable account (which relates solely to the purchase of merchandise) decreased $13,760 during the year. Geographic also reported sales of $856,000 and cost of goods sold of $597,600 during the same period. Geographic's payments to suppliers for inventory during the year were:

Question

Quizplus · Accepted Answer

To determine the payments to suppliers for inventory, we need to use the formula: 
Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold 
We know from the question that the cost of goods sold is $597,600. To calculate purchases, we need to rearrange the formula: 
Purchases = Beginning Inventory + Ending Inventory – Cost of Goods Sold 
We don't know the beginning or ending inventory, but we can use the information given about the changes to the Inventory and Accounts Payable accounts: 
Ending Inventory = Beginning Inventory – Inventory Decrease + Accounts Payable Decrease 
Plugging in the numbers given: 
Ending Inventory = Beginning Inventory – 37,500 + 13,760 
Ending Inventory = Beginning Inventory – 23,740 
Now we can calculate purchases: 
Purchases = Beginning Inventory + (Beginning Inventory – 23,740) – 597,600 
Purchases = 2Beginning Inventory – 23,740 – 597,600 
Purchases = 2Beginning Inventory – 621,340

We still need to find the value of Beginning Inventory. Since we don't have that information explicitly, we can use another formula: 
Ending Inventory = Beginning Inventory + Purchases – Cost of Goods Sold

Plugging in the numbers: 
Ending Inventory = Beginning Inventory - 23,740 
Beginning Inventory - 23,740 = Beginning Inventory + Purchases - 597,600 
Purchases = Beginning Inventory - Beginning Inventory + 23,740 + 597,600 
Purchases = $621,340

Therefore, the payments to suppliers for inventory during the year were $573,860 (Purchases + Inventory Decrease + Beginning Accounts Payable).

Geographic Enterprise's Inventory Account Decreased $37,500 and Its Accounts Payable