Your ﬁrm sells $2,000 worth of goods in December, $1,700 worth in January, $1,500 in February and $1,600 in March. Your cost is 60% of the retail price. You have a receivables period of 30 days and a
Payables period of 45 days. You buy your products one month prior to selling them. Which one of
The following statements is correct given this information?

Question

Quizplus · Accepted Answer

To calculate the disbursement to suppliers for each month, we need to find out the cost of goods sold (COGS) for the previous month:
- December COGS = 0.6 * $2,000 = $1,200
- January COGS = 0.6 * $1,700 = $1,020
- February COGS = 0.6 * $1,500 = $900
- March COGS = 0.6 * $1,600 = $960

Since the company buys products one month prior to selling them, the January disbursement to suppliers will be for goods purchased in December. Therefore, the correct answer is B: $1,200 - $450 (beginning AP balance) = $750 paid in January.

Similarly, the February disbursement will be for January purchases, which is $1,020. But since the payables period is 45 days, the amount due at the end of February is $1,020 * (45/30) = $1,530. If we subtract the beginning AP balance of $750, the answer is C: $780 paid in February.

For March, the payable balance at the end of February is $1,530, and the March COGS is $960. So the disbursement in March is $960 - $1,530 = -$570. This means that the company has a credit with its suppliers, so there is no payment needed.

The beginning accounts payable balance can be calculated as the ending balance from the previous period (in this case, December) plus any purchases made during that period, minus any payments made. So the beginning AP balance as of January 1st is $0 + $1,200 - $750 = $450, which is answer E.

Your ﬁRm Sells $2,000 Worth of Goods in December, $1,700