Chapter 11, Problem 19E

1.

To determine

Calculate cash paid to suppliers.

Explanation of Solution

Cash outflows: The amount of cash paid by a company for the operating, investing, and financing activities of the business during a certain period is referred to as cash outflow.

Calculate cash paid to suppliers.

Situation	Cost of goods sold	Inventory Increase (Decrease)	Accounts payable Increase (Decrease)	Cash paid to suppliers
1	$150	$25	$20	(1) $155
2	$150	($25)	$20	(2) $105
3	$150	$25	($20)	(3) $195
4	$150	($25)	($20)	(4) $145

Table (1)

Working note:

Calculate amount of cash paid to suppliers for each situation:

Situation 1:

$\begin{array}{c}\text{Cash paid to suppliers}=\left(\begin{array}{l}\text{Cost of goods sold}+\text{Increase in inventory}-\\ \text{Increase in accounts payable}\end{array}\right)\\ =\$150+\$25-\$20\\ =\$155\end{array}$ (1)

Situation 2:

$\begin{array}{c}\text{Cash paid to suppliers}=\left(\begin{array}{l}\text{Cost of goods sold}-\text{Decrease in inventory}-\\ \text{Increase in accounts payable}\end{array}\right)\\ =\$150-\$25-\$20\\ =\$105\end{array}$ (2)

Situation 3:

$\begin{array}{c}\text{Cash paid to suppliers}=\left(\begin{array}{l}\text{Cost of goods sold}+\text{Increase in inventory}+\\ \text{Decrease in accounts payable}\end{array}\right)\\ =\$150+\$25+\$20\\ =\$195\end{array}$ (3)

Situation 4:

$\begin{array}{c}\text{Cash paid to suppliers}=\left(\begin{array}{l}\text{Cost of goods sold}-\text{Decrease in inventory}+\\ \text{Decrease in accounts payable}\end{array}\right)\\ =\$150-\$25+\$20\\ =\$145\end{array}$ (4)

2.

To determine

Prepare the summary journal entry for each situation.

Explanation of Solution

Prepare the summary journal entry for each situation.

Situation 1:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	150
	Inventory	25
	Accounts payable		20
	Cash		155
	(To record the summary journal entry)

Table (1)

• Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
• Inventory is an asset account and it is increased. Hence, debit inventory with $25.
• Accounts payable is a liability account and it is increased. Hence, credit accounts payable with $20.
• Cash is an asset account and it is decreased. Therefore, credit cash with $155.

Situation 2:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	150
	Inventory		25
	Accounts payable		20
	Cash		105
	(To record the summary journal entry)

Table (2)

• Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
• Inventory is an asset account and it is decreased. Hence, credit inventory with $25.
• Accounts payable is a liability account and it is decreased. Hence, credit accounts payable with $20.
• Cash is an asset account and it is decreased. Therefore, credit cash with $105.

Situation 3:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	150
	Accounts payable	20
	Inventory	25
	Cash		195
	(To record the summary journal entry)

Table (3)

• Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
• Inventory is an asset account and it is increased. Hence, debit inventory with $25.
• Accounts payable is a liability account and it is decreased. Hence, debit accounts payable with $20.
• Cash is an asset account and it is decreased. Therefore, credit cash with $195.

Situation 4:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	150
	Accounts payable	20
	Inventory		25
	Cash		145
	(To record the summary journal entry)

Table (4)

• Cost of goods sold is an expense account and it decreases the stockholders’ equity. Hence, debit cost of goods sold with $150.
• Accounts payable is a liability account and it is decreased. Hence, debit accounts payable with $20.
• Inventory is an asset account and it is decreased. Hence, credit inventory with $25.
• Cash is an asset account and it is decreased. Therefore, credit cash with $145.