Payne Company Provided the Following Information Relevant to Its Inventory

question 72

Multiple Choice

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $$\begin{array} { c c c c c } & \begin{array} { c } \text { Dec. Year 1 } \\\text { (Actual) }\end{array} & \begin{array} { c } \text { Jan. Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Feb. Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Mar. Year 2 } \\\text { (Budgeted) }\end{array} \\\text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000\end{array}$$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold.The company purchases all inventory on account.January Year 2 budgeted purchases are $150,000.The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase.
Budgeted cash payments for inventory in February Year 2 would be:

• A) $132,600.
• B) $152,600.
• C) $99,000.
• D) $159,000.

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Definitions:

Bad Debts

Funds that a business or individual is unable to collect because the debtor is unable to pay.

Allowance Method

An accounting technique used to estimate and account for doubtful accounts receivable.

Bad Debts

Accounts receivable that are considered uncollectible, representing a loss to the company.

Sales Tax Rate

The percentage of sales price that businesses must collect from customers and remit to governmental agencies as sales tax.