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16 January, 15:39

LaRoe Lawns' inventory increased during the year by $6.7 million. Its accounts payable increased by $6.6 million during the same period. a. What is the amount of cash LaRoe paid to suppliers of merchandise during the reporting period if its cost of goods sold was $44 million? b. Prepare a summary entry that represents the net effect of merchandise purchases during the reporting period.

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  1. 16 January, 19:38
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    a. Cash paid to suppliers of merchandise during the reporting period: $44.1 million

    b. A summary entry that represents the net effect of merchandise purchases during the reporting period as below:

    Dr Cost of goods sold 44,000,000

    Dr Inventory 6,700,000

    Cr Account Payable 6,600,00

    Cr Cash 44,100,000

    Explanation:

    We have the total amount goods buying from the supplier in the period = Cost of good sold in the period + Difference in the inventory balance of the period = $44 million + $6.7 million = $50.7 million

    Thus, the additional amount owed supplier in the period is $50.7 million.

    Account Payable increased by 6.6 million, it means that only 44.1 million (that is, 50.7 million - 6.6 million) is paid during the period.

    Thus, the summary will represents: Increase in COGS 44 million (given); Increase in Inventory 6.7 million (given); Increase in account payable 6.6 million (given) and Decrease in Cash 44.1 million (calculated above).
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