Question

A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:
(A) $736,000.
(B) $728,000.
(C) $704,000.
(D) $720,000.
(E) $712,000.

Answer 1

Answer:

The correct option is C. $704,000

Explanation:

The computation of total cash payments is shown below:

= Cost of goods sold - net effect of inventory balance - net effect of accounts payable balance

where,

Net effect of inventory balance = Opening inventory balance - Ending inventory balance

= $200,000 - $188,000

= $12,000

Net effect of inventory balance = Ending accounts payable balance - opening accounts payable balance

= $84,000 - $80,000

= 4,000

So, the cash payment is equals to

= $720,000 - $12,000 - $4,000

= $704,000

Hence, the correct option is C. $704,000