[Anonymous]

Having some trouble conceptually wrapping my head around the question below. Hopefully someone can help explain!

The following balances were reported by Mall Co. at December 31, 2005 and 2004:

12/31/05 12/31/04

Inventory $260,000 $290,000

Accounts payable 75,000 50,000

Mall paid suppliers $490,000 during the year ended December 31, 2005. What amount should Mall report for cost of goods sold in 2005?

a. 545,000

b. 495,000

c .485,000

d. 435,000

[Skrier]

cscpa21.. you will first need to calculate the purchases using the base formula for accounts payable and payments to suppliers. Once you have the purchases, you can then calculate the cogs.

AUD- 84
FAR- 75
REG- 78...I am DONE!!!
BEC- 79

[Skrier]

cscpa21.. you will first need to calculate the purchases using the base formula for accounts payable and payments to suppliers. Once you have the purchases, you can then calculate the cogs.

AUD- 84
FAR- 75
REG- 78...I am DONE!!!
BEC- 79

[Skrier]

Beg AP= 50,000

SQUEEZE PURCHASES

Less Pmt (490,000)

Ending AP= 75,000

Beg Inv= 290,000

+ Purchases

-Ending Inv (260,000)

COGS= 545,000

Hope this helps….Sorry had to edit, I had the beginning and ending backwards.

AUD- 84
FAR- 75
REG- 78...I am DONE!!!
BEC- 79

[Skrier]

Beg AP= 50,000

SQUEEZE PURCHASES

Less Pmt (490,000)

Ending AP= 75,000

Beg Inv= 290,000

+ Purchases

-Ending Inv (260,000)

COGS= 545,000

Hope this helps….Sorry had to edit, I had the beginning and ending backwards.

AUD- 84
FAR- 75
REG- 78...I am DONE!!!
BEC- 79

[Anonymous]

It really helps to draw out T-accounts for Inventory and Accounts Payable.

Once you've set up the T-accounts, you should find that purchases equal $515,000 and COGS equal $545,000

[Anonymous]

It really helps to draw out T-accounts for Inventory and Accounts Payable.

Once you've set up the T-accounts, you should find that purchases equal $515,000 and COGS equal $545,000

[abouelela]

Amount paid to suppliers = Cost of goods sold ‐ Inventory decrease ‐ AP increase.
$490,000 = Cost of goods sold ‐ $30,000 ‐ $25,000
$545,000 = Cost of goods sold

The inventory decrease is subtracted from cost of goods sold because it is an inventory reduction included in cost of goods sold that was not paid for in the current period. The accounts payable increase is also subtracted because it represents an increase in inventory and, therefore, cost of goods sold that was not paid for in the current period.

[nolan7120]

As Casey said, use T accounts for AP and Inv. You'll get a squeeze amount of $515,000 for total purchases in the AP account, which when carried over to the Inv account allows you to squeeze out the COGS which is $485,000

Edit: Ha I got C while everyone else got A. I don't see how I did it wrong, unless I'm right.

Double edit: I switched the beginning and ending balance for Inv. Whoops! The correct answer is $545,000, A. Use T accounts, they're your friend!

FAR (6/9/16) - 81

[Author]

Replies