Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts payable. Make the following assumptions: current year's sales are $27,800,000; current year's cost of goods sold is $17,528,000; sales are expected to rise by 30%. The firm's investment in accounts payable in the current year is $2,218,500. What is the projection for next year's accounts payable? A. $3,781,750 B. $4,184,000 C. $2,127,000 D. $2,884,050

option (D) $2,884,050

Explanation:

Data provided in the question:

current year's sales = $27,800,000

Current year's cost of goods sold = $17,528,000

Sales for the next year = current year's sales + 30% current year's sales

= $27,800,000 + 0.30 * $27,800,000

= $36,140,000

Accounts payable in the current year = $2,218,500

Now,

Percentage of Account payable to sales for the current year

= [Accounts payable in the current year : current year's sales] * 100%

= [ $2,218,500 : $27,800,000 ] * 100%

= 7.98%

This will be same for the next year

therefore,

Percentage of Account payable to sales for the next year

= [Accounts payable in the next year : next year's sales] * 100%

or

7.98% = [ Accounts payable in the next year : $36,140,000 ] * 100%

or

Accounts payable in the next year = 0.0798 * $36,140,000

= 2,884,050

Hence,

The correct answer is option (D) $2,884,050