Weisbro and Sons purchases its inventory one quarter prior to the quarter of sale. The purchase price is 60% of the sales price. The accounts payable period is 60 days. The accounts payable balance at the beginning of quarter one is $27,500. What is the amount of the expected disbursements for quarter two given the following expected quarterly sales? Assume that a year has 360 days.

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for quarter two. Since Weisbro purchases inventory one quarter prior to the quarter of sale, the COGS for quarter two would be 60% of the sales in quarter one. Using the sales figures given:

COGS Q2 = 60% x (1.5 x $20,000) = $18,000

Next, we need to calculate the purchases for quarter two, which would be the COGS plus the increase in inventory from the beginning to the end of quarter two:

Purchases Q2 = COGS Q2 + (Ending inventory Q2 - Beginning inventory Q2)

Since the accounts payable period is 60 days, the accounts payable balance at the end of quarter two would be equal to the purchases for quarter two, since the purchases made in quarter two would be paid off in quarter three. Therefore:

Accounts payable balance Q2 = Purchases Q2 = COGS Q2 + (Ending inventory Q2 - Beginning inventory Q2)

$27,500 (accounts payable balance beginning Q1) + Purchases Q1 + Purchases Q2 = Accounts payable balance end Q2

$27,500 + (0.6 x 1.5 x $20,000) + Purchases Q2 = Accounts payable balance end Q2

$27,500 + $18,000 + Purchases Q2 = Accounts payable balance end Q2

$45,500 + Purchases Q2 = Accounts payable balance end Q2

We know that the accounts payable period is 60 days, which is equal to two months or one-sixth of a year. So the accounts payable balance end Q2 would be the purchases made in Q2 divided by 6, since the accounts payable balance represents the amount Weisbro owes to its suppliers for those purchases. Therefore:

Accounts payable balance end Q2 = Purchases Q2 / 6

$45,500 + Purchases Q2 = Purchases Q2 / 6

$45,500 = Purchases Q2 / 5

$227,500 = Purchases Q2

Finally, we can calculate the expected disbursements for quarter two, which would be the purchases made in quarter two plus the beginning accounts payable balance, minus the ending accounts payable balance (since this represents the amount Weisbro paid to its suppliers). Therefore:

Expected disbursements Q2 = Purchases Q2 + Beginning accounts payable balance - Ending accounts payable balance

Expected disbursements Q2 = $227,500 + $27,500 - ($227,500 / 6)

Expected disbursements Q2 = $227,500 + $27,500 - $37,916.67

Expected disbursements Q2 = $217,083.33

Rounding this answer to the nearest hundred gives us:

Expected disbursements Q2 = $22,000

Therefore, the correct answer is choice C.

Weisbro and Sons Purchases Its Inventory One Quarter Prior to the Quarter