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Wiley Question of the Week (Sponsored)

The following is a paid post sponsored by Wiley

Use the following information regarding Luxury Interiors to answer the next 2 questions:

  • Revenue = $85 million
  • Cost of goods sold = $44 million
  • Decrease in inventory = $7 million
  • Increase in accounts payable = $4 million
  • Decrease in accounts receivable = $5 million

Question 1:
Cash paid to suppliers is closest to:
A. $37 million.
B. $47 million.
C. $33 million.

Question 2:
Cash received from customers is closest to:
A. $90 million.
B. $80 million.
C. $73 million.

Video Explanation and Answers

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Hi, I have a query about the answer to the first question. Wouldn’t an increase in accounts payable be ignored, as although the money is borrowed and will need to be paid to suppliers in the future, it is not yet “paid”? As the question asks what cash has been paid to suppliers, shouldn’t this figure be ignored?

How can you take COGS and include in cash paid to supplier ?

Beginning Inventory + Purchases- Ending Inventory = COGS

As Inventory went down by $7m( Beg - End), Purchases = $44 - $7= $37m. If we consider Luxury Interiors as a merchandiser,we could take this as the cash paid out. What if Luxury interiors is a manufacturer ? In this case COGS will include direct labor and factory overhead. How can we then use COGS in the cash paid to suppliers ?