Dilbert Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: o Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
O Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible.
O The cost of goods sold is 65% of sales.
O The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
O Other monthly expenses to be paid in cash are $20,300.
O Monthly depreciation is $20,000.
O Ignore taxes. Accounts payable at the end of December would be:
A)$81,900
B)$141,700
C)$59,800
D)$149,500

Question

Dilbert Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: o Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
O Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible.
O The cost of goods sold is 65% of sales.
O The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
O Other monthly expenses to be paid in cash are $20,300.
O Monthly depreciation is $20,000.
O Ignore taxes.  Accounts payable at the end of December would be:
A)$81,900 
B)$141,700 
C)$59,800 
D)$149,500

Quizplus · Accepted Answer

To find the accounts payable at the end of December, we need to first calculate the purchases made in November and December.

Cost of goods sold in November = 0.65 x $260,000 = $169,000
Cost of goods sold in December = 0.65 x $230,000 = $149,500

Ending merchandise inventory for November = 0.60 x $149,500 = $89,700
Ending merchandise inventory for December = 0.60 x $210,000 = $126,000

Therefore, purchases made in November = Cost of goods sold in November + Ending merchandise inventory for December - Ending merchandise inventory for November
= $169,000 + $126,000 - $89,700
= $205,300

Purchases made in December = Cost of goods sold in December + Ending merchandise inventory for January - Ending merchandise inventory for December
= $149,500 + (0.60 x 0.65 x $210,000) - (0.60 x $149,500)
= $149,500 + $68,850 - $89,700
= $128,650

Accounts payable at the end of December = Purchases made in November + Purchases made in December - Collections in November - Collections in December
= $205,300 + $128,650 - (0.80 x $260,000) - (0.19 x $230,000)
= $333,950 - $203,800
= $130,150

However, we need to remember that payment for merchandise is made in the month following the purchase. So, the accounts payable at the end of December would be:

Accounts payable at the end of November = Purchases made in November - Collections in November
= $205,300 - (0.80 x $260,000)
= $205,300 - $208,000 (Collections in November)
= -$2,700 (which means there was an excess payment in November)

Accounts payable at the end of December = Accounts payable at the end of November + Purchases made in December - Collections in December
= -$2,700 + $128,650 - (0.19 x $230,000)
= -$2,700 + $128,650 - $43,700
= $81,250

Therefore, the best choice is B, $141,700.

Dilbert Farm Supply Is Located in a Small Town in the Rural