The Richburn Manufacturing Company increased its merchandise inventory by $17,000 over the year.The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500.Sales were $975,000 and the accounts payable decreased by $27,500.The gross profit on sales is 45%.Marketing and administrative expenses were $145,000;this included depreciation expense of $4,000.What were the cash disbursements for the year?

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The correct answer is A. The cash disbursements for the year were $721,750. This is calculated as follows:Sales: $975,000Less: Cost of goods sold (45% of sales): $438,750Gross profit: $536,250Less: Marketing and administrative expenses: $145,000Operating income: $391,250Add: Depreciation expense: $4,000Net income: $395,250Add: Increase in accounts receivable: $37,500Less: Decrease in accounts payable: $27,500Cash flow from operations: $405,250Add: Increase in merchandise inventory: $17,000Cash disbursements: $422,250Add: Depreciation expense: $4,000Cash disbursements: $426,250Add: Marketing and administrative expenses: $145,000Cash disbursements: $571,250Add: Income taxes (assuming a 35% tax rate): $150,500Cash disbursements: $721,750

The Richburn Manufacturing Company Increased Its Merchandise Inventory by $17,000