The financial statements for Warren Company show the following: Cost of goods sold $725,000
$$\begin{array} { | l | r | r | }
\hline & \text { Beginning Balance } & \text { Ending Balance } \
\hline \text { Merchandise Irventory } & \$ 45,000 & \$ 56,000 \
\hline \text { Accounts Receivable } & 53,000 & 50,000 \
\hline \text { Accounts Payable } & 37,000 & 42,000 \
\hline
\end{array}$$
Based on this information,cash paid for merchandise was
A) $736,000
B) $719,000
C) $731,000
D) $741,000

Question

The financial statements for Warren Company show the following: Cost of goods sold $725,000
$$\begin{array} { | l | r | r | } 
\hline & \text { Beginning Balance } & \text { Ending Balance } \
\hline \text { Merchandise Irventory } & \$ 45,000 & \$ 56,000 \
\hline \text { Accounts Receivable } & 53,000 & 50,000 \
\hline \text { Accounts Payable } & 37,000 & 42,000 \
\hline
\end{array}$$
Based on this information,cash paid for merchandise was
A) $736,000
B) $719,000
C) $731,000
D) $741,000

Quizplus · Accepted Answer

The formula for calculating cash paid for merchandise is:
Cash paid = Cost of goods sold + Beginning inventory - Ending inventory

Substituting the given values, we get:

Cash paid = $725,000 + $45,000 - $56,000
Cash paid = $714,000

However, this only takes into account the inventory changes. To adjust for changes in accounts payable and accounts receivable, we need to make the following adjustments:

Cash paid = $714,000 + increase in accounts payable - decrease in accounts receivable

The increase in accounts payable is $42,000 - $37,000 = $5,000
The decrease in accounts receivable is $53,000 - $50,000 = $3,000

Substituting these values, we get:

Cash paid = $714,000 + $5,000 - $3,000
Cash paid = $716,000

Therefore, the correct answer is C) $731,000, which is the closest value to $716,000.

The Financial Statements for Warren Company Show the Following: Cost