Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts payable.Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%.The firm's investment in accounts payable in the current year is $2,218,500.What is the projection for next year's accounts payable?

Question

Quizplus · Accepted Answer

To use the percent of sales method, we need to multiply next year's projected sales by the current year's accounts payable as a percentage of sales. 
Current year's accounts payable as a percentage of sales = $2,218,500 / $27,800,000 = 0.0799 or 7.99%
We are given that sales are expected to rise by 30%, so projected sales for next year = $27,800,000 x 1.30 = $36,140,000
Projected accounts payable = $36,140,000 x 0.0799 = $2,884,050
Therefore, the projection for next year's accounts payable is option C: $2,884,050.

Use the "Percent of Sales Method" of Preparing Pro Forma