Student Forums CMA Part 1 Section B: Planning, Budgeting and Forecasting B.6. Top-Level Planning and Analysis 30. Question ID: CMA 1294 3.8 (Topic: Budgeting Calculation Questions)

30. Question ID: CMA 1294 3.8 (Topic: Budgeting Calculation Questions)

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  • #230138
    Wenyan Yuan
    Participant

    Hi, Lynn, 

    The question is asking “the projected balance in accounts payable on December 31”. 

    The answer, however, seems to be for the credit purchase amount made in December. 

    These two things should be different, imo. 

    Should the balance on Dec 31st be 203,160? It’s calculated as below

    Beginning balance 175,000

     -) Payment of Nov credit purchase of Dec material: 520,000 x 0.8 x 0.4 x 0.8 = 133,120

    +) Credit purchase of rest of Dec material to be paid in Jan: 520,000x 0.8 x 0.4 x 0.2 = 33,280

    +) Credit purchase of Jan material to be paid in Jan: 500, 000 x 0.8 x 0.4 x 0.8 = 128, 000

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  • #230163
    Lynn Roden
    HOCK international

    Hello Wenyan Yuan,

    The question says, “Payment for the components is made in the month following purchase.”

    Therefore, purchases made during the month of December will be paid for during the month of January. Therefore, purchases made during the month of December are still in Accounts Payable at the end of December.

    So when we calculate December purchases, we are also calculating the December 31 Accounts Payable balance.

    Lynn

    #230178
    Wenyan Yuan
    Participant

    Thanks for the reply, Lynn. 

    I understand the purchases made during December would be paid in Jan so they will still be in AP at the end of Dec. 

    My confusion is this: Should the AP balance on Dec 31 also include the beginning balance as of Nov 30 minus the payment made in Dec for Nov purchase? 

     

    #230181
    Lynn Roden
    HOCK international

    Hello Wenyan Yuan,

    Yes, but that does not change the answer. The November 30 A/P balance is 175,000. Therefore, the activity during December and the December ending A/P balance is:

    Nov. 30 balance 175,000 − December payments 175,000 + December purchases 161,280 = Dec. 31 balance 161,280

    Lynn

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