A company's inventory balance was $200,000 at 12/31/11 and $188,000 at 12/31/12.Its accounts payable balance was $80,000 at 12/31/11 and $84,000 at 12/31/12,and its cost of goods sold for 2012 was $720,000.The company's total amount of cash payments for merchandise in 2012 equals:
A)$704,000
B)$712,000
C)$720,000
D)$728,000
E)$736,000

Question

Quizplus · Accepted Answer

The correct answer is A because the total amount of cash payments for merchandise in 2012 is equal to the cost of goods sold for 2012 plus the increase in accounts payable minus the decrease in inventory. The increase in accounts payable is $84,000 - $80,000 = $4,000. The decrease in inventory is $200,000 - $188,000 = $12,000. Therefore, the total amount of cash payments for merchandise in 2012 is $720,000 + $4,000 - $12,000 = $704,000.

A Company's Inventory Balance Was $200,000 at 12/31/11 and $188,000