Question

Vernon Books buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory:

	April			May			June
Required purchases (on account)	$	104,000		$	124,000		$	136,000

Vernon Books’s accountant prepared the following schedule of cash payments for inventory purchases. Vernon Books’s suppliers require that 95 percent of purchases on account be paid in the month of purchase; the remaining 5 percent are paid in the month following the month of purchase.

Required

1. Complete the schedule of cash payments for inventory purchases by filling in the missing amounts.

2. Determine the amount of accounts payable the company will report on its pro forma balance sheet at the end of the second quarter.

Answer 1

Solution:

1)

	May	June
Payment for current accounts payable	$117,800	$129,200
Payment for previous accounts payable	5,200	6,200
Total budgeted payments for inventory	$123,000	$135,400

　

Working:

	May	June
Payment for current accounts payable	124,000*95%	136,000*95%
Payment for previous accounts payable	104,000*5%	124,000*5%

2) Because 95% of the current purchases on account are paid in cash in the month of purchase, while remaining 5%% will remain payable at the end of the month, thus $6,800 ($136,000 * 5%).