Question

Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the process of assembling a cash budget for the first quarter of 20x1. The following information has been extracted from the company's accounting records: • All sales are on account. Sixty percent of customer accounts are collected in the month of sale; 30 percent are collected in the following month. Uncollectibles amounting to 10 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 20x0, will be recovered and that the recovery will be in January 20x1. • Sixty percent of the merchandise purchases are paid for in the month of purchase; the remaining 40 percent are paid for in the month after acquisition. • The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $75,000; accounts receivable, $240,000; and accounts payable, $81,000. • Mary and Kay, Inc. maintains a $75,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 9 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time. • Additional data: Sales revenue Merchandise purchases Cash operating costs Proceeds from sale of equipment January $600,000 420,000 108,000 February $690,000 450,000 87,000 March $705,000 570,000 150,000 30,000

Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

Answer 1

	January	February	March
Beginning cash balance	75000	75000	110505
Total Receipts	408000	594000	660000
Subtotal	483000	669000	770505
Less: Disbursements	441000	525000	672000
Cash excess ( deficiency) before financing	42000	144000	98505
Financing
Borrowings to maintain $75000 balance	33000	0	0
Loan principal repaid	0	33000	0
loan interest paid	0	495	0
Ending cash balance	75000	110505	98505
Please note interest has been calculated for 2 months as the money was borrowed in the beginning of january and was returned in the end of february