Question

Cal Farms reported supplies expense of $2,300,000 this year. The supplies account decreased by $250,000 during the year to an ending balance of $470,000. What was the cost of supplies the Cal Farms purchased during the year?

(A) $2,550,000.
(B) $2,770,000.
(C) $1,830,000.
(D) $2,050,000.

Answer 1

Answer:

(A): $ 2,550,000 - Cost of supplies purchases by Cal Farms

Explanation:

The purchases of supplies can be computed by adjusting the movement in  inventory balance of supplies from the expenses for the year.

First we determine the opening balance of supplies

Ending inventory Supplies                                                   $ 470,000

Add: Decrease in supplies balance during the year          $ 250,000

Opening Inventory Supplies                                                $  720,000

The equation for determining the purchases is

Opening Inventory + Purchases - Supplies Expense = Ending inventory

$ 720,000 + Purchases - $ 2,300,000 = $ 470,000

By solving the equation

we get $ 720,000 - $ 470,000 + $ 2,300,000 = Purchases

so the cost of supplies purchased by Cal farma is $ 2,550,000