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Cost of Goods Sold, Gross Profit, and A/P Balance

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Kristen Montana operates a retail clothing operation. She purchases all merchandise inventory on credit and uses a periodic inventory system.

The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for fiscal years 2007, 2008, 2009, and 2010.

2007 2008 2009 2010
Inventory (ending) $15,977 $14,277 $17,677 $15,177
Accounts payable (ending) 24,454
Sales 274,891 276,791 268,691
Purchase of merchandise inventory on account180,389 179,389 163,389
Cash payments to suppliers 136,330 162,330 128,330

Calculate cost of goods sold for each of the 2008, 2009, and 2010 fiscal years. (Enter all amounts as positive and subtract where necessary.)

Calculate the gross profit for each of the 2008, 2009, and 2010 fiscal years. (Enter all amounts as positive and subtract where necessary.)

Calculate the ending balance of accounts payable for each of the 2008, 2009, and 2010 fiscal years. (Enter all amounts as positive and subtract where necessary.)

Sales declined in fiscal 2010. Does that mean that profitability, as measured by the gross profit rate, necessarily also declined? Calculate the gross profit rate for each fiscal year. (Round answers to one decimal place, e.g. 10.5.)

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Solution Summary

This solution illustrates how to compute a business's cost of goods sold, gross profit, accounts payable balance, and gross profit rate.

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