CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A company had sales of 23,085 for the just-concluded year, with a gross margin of 45%. Its accounts receivables increased by 2,317 and inventory decreased by 894. On the basis of the direct statement of cash flows, what were the sales and COGS on a cash basis?
A. Sales: 20,768; COGS: 13,591
B. Sales: 20,768; COGS: 11,803
C. Sales: 25,402; COGS: 13,591
Explanation: Since accounts receivables increased, cash sales were less than shown.
Cash sales = Accrual sales - Increase in A/C Rec. = 23,085 - 2,317 = 20,768

According to the accounting entity, COGS = Opening Inventory + Purchases - Closing Inventory, Purchases = COGS + Change in Inventory.
Thus, Cash COGS = 12,697 - 894 = 11,803.

User Contributed Comments 7

User Comment
danlan Where does 12697 come from? 23085 * (1 - 45%) = 12697
Yurik74 45% is for gross margin, and COGS is hence 55%
serboc great question
Sam123456 I guess that means you got it wrong lol. So did I though.
oneashok this is not medium level, it is hard level difficulty.. good question
pulkitm how is purchases = cash COGS??!
ange @pulkitm: It does not say that. It says purchase = COGS + change in inventory.
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