Question

Ahmed Company purchases all merchandise on credit. It recently budgeted the following month-end accounts payable balances and merchandise inventory balances. Cash payments on accounts payable during each month are expected to be: May, \(1,600,000; June, \)1,490,000; July, \(1,425,000; and August, \)1,495,000. Use the available information to compute the budgeted amounts of (1) merchandise purchases for June, July, and August and (2) cost of goods sold for June, July, and August.

Short answer

The amount of purchases and the amount of cost of goods soldwill be calculated by using the opening and the closing balances of accounts payable and merchandise inventory.

Step-by-step solution

(1) Computation of merchandise purchases

Particulars	June	July	August
Ending accounts payable	$200,000	$235,000	$195,000
Add: Payment on account	$1,490,000	$1,425,000	$1,495,000
Total	$1,690,000	$1,660,000	$1,690,000
Less: Beginning accounts payable	$150,000	$200,000	$235,000
Purchases	$1,540,000	$1,460,000	$1,455,000

(2) Computation of cost of goods sold

Particulars	June	July	August
Beginning inventory	$250,000	$400,000	$300,000
Add: Purchases (From step 1)	$1,540,000	$1,460,000	$1,455,000
Cost of goods available	$1,790,000	$1,860,000	$1,755,000
Less: Ending inventory	$400,000	$300,000	$330,000
Cost of goods sold	$1,390,000	$1,560,000	$1,425,000