Question

Ahmed Company purchases all merchandise on credit. It recently budgeted the month-end accounts payable balances and merchandise inventory balances below. Cash payments on accounts payable during each month are expected to be May, $1,400,000; June, $1,400,000; July, $1,400,000; and August, $1,500,000

	Accounts Payable			Merchandise Inventory
May 31	$	180,000		$	230,000
June 30		190,000			300,000
July 31		200,000			500,000
August 31		120,000			400,000

(1) Compute the budgeted amounts of merchandise purchases. Budgeted amounts: June July August Ending accounts payable Payments on account Subtotal 0 0 0 Beginning accounts payable Purchases $0 $0 $0 (2) Compute the budgeted amounts of cost of goods sold. Budgeted amounts: June July August Beginning inventory Purchases Cost of goods available for sale Ending inventory (300,000) (500,000) (400,000) Cost of goods sold

Answer 1

1)The budgeted amounts of merchandise purchases is calculated as follows:

	June	July	August
Ending accounts payable	190,000	200,000	120,000
Payments on account	1,400,000	1,400,000	1,500,000
Subtotal	1,590,000	1,600,000	1,620,000
Beginning accounts payable	(180,000 )	(190,000)	( 200,000)
Purchases	1,410,000	1410,000	1420,000

(2) The budgeted amounts of cost of goods sold is calculated as follows:

	June	July	August
Beginning inventory	230,000	300,000	500,000
Purchases	1,410,000	1410,000	1,420,000
Cost of goods available for sale	1,640,000	1,710,000	1,920,000
Ending inventory	( 300,000)	( 500,000)	(400,000)
Cost of goods sold	$1,340,000	$1,210,000	$1,520,000