ABC Inc.has a 59-day average payables period.The account payables are $2,737.50 at the beginning and $3,589.50 at the end of the covering year.What is the annual cost of goods sold? Use a 365-day year when calculating the APP.
A)$17,265
B)$18,992
C)$19,571
D)$20,123

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods purchased during the year by using the change in accounts payable:

Cost of Goods Purchased = Ending Accounts Payable - Beginning Accounts Payable

Cost of Goods Purchased = $3,589.50 - $2,737.50 = $852

Next, we need to calculate the cost of goods sold (COGS) by using the average payables period:

Average Payables Period = 59 days 
Annual Payables Turnover = 365 / 59 = 6.186

COGS = Cost of Goods Purchased / Annual Payables Turnover

COGS = $852 / 6.186 = $137.89

Finally, we can calculate the annual cost of goods sold by multiplying COGS by the number of times it is sold during the year:

Annual COGS = COGS * Number of Sales 
Assuming only one sale per year, the annual COGS is equal to $137.89.

ABC IncHas a 59-Day Average Payables Period