Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

• Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January.
• Collections are expected to be 90% in the month of sale and 10% in the month following the sale.
• The cost of goods sold is 75% of sales.
• The company desires to have an ending merchandise inventory equal to 60% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $24,700.
• Monthly depreciation is $16,000.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	19,000
Accounts receivable		77,000
Inventory		157,500
Property, plant and equipment, net of $502,000 accumulated depreciation		1,002,000
Total assets	$	1,255,500
Liabilities and Stockholders’ Equity
Accounts payable	$	272,000
Common stock		780,000
Retained earnings		203,500
Total liabilities and stockholders’ equity	$	1,255,500

Accounts payable at the end of December would be:

Multiple Choice

• $135,000

• $96,000

• $231,000

• $240,000

Answer 1

Correct answer-----------$231,000

Working

Purchase Budget
	November	December	January
Cost of goods sold	$        262,500	$        240,000	$           225,000
Plus: Desired ending inventory	$        144,000	$        135,000
Total Inventory required	$        406,500	$        375,000
Less: Beginning inventory	$        157,500	$        144,000
Purchases	$        249,000	$        231,000

.

	November	December	January
Sales	$ 350,000.00	$ 320,000.00	$     300,000.00
Cost of goods sold (75% of above)	$ 262,500.00	$ 240,000.00	$     225,000.00

Payment for December purchase will be paid in January so accounts payable will be $231000 on december 31.