Question

Fortune Company's direct materials budget shows the following cost of materials to be purchased for the coming three months: January February March Material purchases $12,040 $14,150 $10,970 Payments for purchases are expected to be made 50% in the month of purchase and 50% in the month following purchase. The December Accounts Payable balance is $6,500. The expected January 31 Accounts Payable balance is: a. $6,500. b. $7,075. c. $12,040. d. $6,020. e. $9,270.

Answer 1

Answer:

d. $6,020

Explanation:

It is provided that payments to vendor that is accounts payable will be made 50% in the month of purchase and 50 % in upcoming month.

That is outstanding balance at any month end will be 50% of purchases of that month.

Here, opening balance of accounts payable = $6,500

This will be paid in January

Assuming this is 50% of purchases of December

Now purchase in January = $12,040

50% paid in January itself = $12,040 $\times$ 50% = $6,020

50% outstanding at month end = $12,040 $\times$ 50% = $6,020

Therefore correct option is

d. $6,020