Question

Williams Company sells women's hats for $12 each. Actual and budgeted sales in units for nine months are as follows: January (actual) February (actual) March (actual) April (budget) May (budget) 25,000 June (budget) ... 50,000 26,000 July (budget) ....... 30,000 40,000 August (budget) .......... 28,000 65,000 September (budget) ...... 25,000 100,000 The company should have sufficient inventory on hand at the end of each month to supply 40% of the hats sold in the following month. Suppliers are paid $4.50 each for a hat. One half of a month's purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit with no discount, and payable within 15 days. The company has found, however, that only 20%of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Monthly operating expenses for the company are given below: Expenses are paid in the month incurred. Variable: Sales commission................. 4% of sales Fixed: Advertising ..... $190,000 Rent.. 22.000 Salaries. 106,000 Utilities 9,000 Insurance.... 5,000 Depreciation. 15,000 Additional information: a. In April the company will pay $53,750 for restructuring costs. b. Insurance is paid on an annual basis, in November of each year. c. The company plans to purchase investments for $161.250 cash in May. d. The company will purchase for cash $40.000 in new equipment during June. e. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. f. The company plan to collect $30.000 from common stock 15sued in May.

Answer is

My question is why opening balance of cash of quarter is 74000? And the interest is times 3 month, or times 2 month?

Answer 1

If you see the balance sheet given in your question on March 31 , you will see that the ending cash balance is 74,000 .thus this cash balance will be beginning balance in quarter 2 that is on April 1 Interest 170,000 borrowing was paid in third month after borrowing , we assume borrowing was done at the beginning of month april since it was outstanding for April ,may and june (paid at the end of month) it needs to be multiplied with 3 for 3 months as interest given 1.5% is for a month similarly $10000 remained outstanding for two months hence need to be multiplied by 2