Chapter 22, Problem 26QS

To determine

Concept Introduction:

Cash payments for merchandise:

The cash payments for merchandise are the cash payments made to the creditors of the business from whom the merchandise inventory has been purchased. The payment made to the creditors are based on the policies of the company. The company may decide to pay a portion of due in the month of purchase and a portion in the next month.

To compute:

Cash payments for September

Answer to Problem 26QS

Solution:

Cash payments for September = $ 630,000

Cash payments for Merchandise (Budgeted)
For the Month Ended September 30
Cash payments for August purchases	$ 450,000
Cash payments for September purchases	$ 180,000
Cash payments for Merchandise for September	$ 630,000

Explanation of Solution

The cash payments for September are calculated as under −

$\begin{array}{l}CashpaymentsforMerchandiseforSeptember=\\ CashPaymentsforAugustPurchases\\ +CashPaymentsforSeptemberpurchases\end{array}$

The cash payments for August purchases and September purchases are calculated as under −

Cash payments for August Purchases −

Given,

• August purchases = $ 600,000
• Percentage of Merchandise purchases to be paid in September = 75 % ( 75 % to be paid in the following month)

$\begin{array}{l}CashpaymentsforAugustPurchases=AugustpurchasesXPercentageoftotaltobepaid\\ CashpaymentsforAugustPurchases=\text{ \$ 600,000 }X\text{ 75\%}\\ CashpaymentsforAugustPurchases=\text{ \$ }450,000\end{array}$

Cash payments for August Purchases = $ 450,000.

Cash payments for September Purchases −

Given,

• September purchases = $ 720,000
• Percentage of Merchandise purchases to be paid in September = 25 % ( 25 % to be paid in the month of purchase)

$\begin{array}{l}Cashpaymentsfor\text{ September }Purchases=\text{ September }purchasesXPercentageoftotaltobepaid\\ Cashpaymentsfor\text{ September }Purchases=\text{ \$ 720,000 }X\text{ 25\%}\\ Cashpaymentsfor\text{ September }Purchases=\text{ \$ 18}0,000\end{array}$

Cash payments for September Purchases = $ 180,000.

Now, the cash payments for September is calculated as −

$\begin{array}{l}CashpaymentsforMerchandiseforSeptember=\\ CashPaymentsforAugustPurchases\\ +CashPaymentsforSeptemberpurchases\end{array}$

Given,

• Cash payments for August Purchases = $ 450,000
• Cash payments for September Purchases = $ 180,000

$\begin{array}{l}CashpaymentsforMerchandiseforSeptember=\text{\$ 450,000}+\text{ \$ 180,000}\\ CashpaymentsforMerchandiseforSeptember=\$630,00\end{array}$

Conclusion

Thus, the cash payments for the month of September = $ 630,000.