B is corrent. The solutions approach is to use T-accounts for inventory and accounts payable to find cash disbursements.
Since gross profit margin is 25%, cost of goods sold (1) must be $1,125,000 (75% × $1,500,000). Therefore, purchases of inventory on account (3) must have been $1,055,000 ($1,125,000 – $70,000). If AP was decreased by $120,000 (4), cash disbursements (5) must be $1,175,000 ($1,055,000 + $120,000).
A is incorrect. Estimated cash disbursements for inventories is equal to $1,175,000.
A is incorrect. Estimated cash disbursements for inventories is equal to $1,175,000.
D is incorrect. Estimated cash disbursements for inventories is equal to $1,175,000.
