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; 35 percent are collected in the following month. Uncollectibles amounting to 5 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. • Seventy percent of the merchandise purchases are paid for in the month of purchase, the remaining 30 percent are paid for in the month after acquisition. • The December 31, 20xo, balance sheet disclosed the following selected figures: cash, $100,000; accounts receivable, $255,000; and accounts payable, $84,000. • Mary and Kay, Inc. maintains a $100,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 8 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 $630,000 450,000 111,000 February $720,000 480,000 90,000 March $735,000 600.000 153,000 33.000 Required: 1. Prepare a schedule that discloses the firm's total cash collections for Japuary through March. 2. Prepare a schedule that discloses the firm's total cash disbursements fok January through March 3. Prepare a schedule that summarizes the firm's financing cash flows for January through March. Complete this question by entering your answers in the tabs below.

Answer 1

solution: 1.Scheule of cash collections Collection of accounts receivable Collection of January sales Collection of February sales Collection of March sales Sale of equipment Total cash collections January February March 51,000 378,000 220,500 | 432,000 252,000 441,000 33,000 429,000 652,500 726,000 February March January 84,000 315,000 2.Schedule of cash payments Payment of accounts payable Payment of January purchases Payment of February purchases Payment of March purchases Cash operating costs Total cash disbursements 135,000 336,000 144,000 420,000 90,000 153,000 561,000 717,000 111,000 510,000 3. cash budget January Beginning cash balance 100,000 Total receipts 429,000 Subtotal 529,000 Less: Total disbursements 510,000 Cash excess (deficiency) before financing 119,000 Financing: Borrowing to maintain $100,000 balance 81,000 Loan principal repaid Loan interest paid=81000*0.08*2/12 - Ending cash balance 100,000 February March 100,000 109,420 652,500 726,000 752,500 835,420 561,000 717,000 191,500 118,420 - 81,000 - 1.080 109,420 118,420

Working: * cash collection from sales Account receivable=255000*0.2 Mar Jan Feb 51000 Quarter 51000 Jan-Sales 60% of 630000 378000 35% of 630000 378000 220500 220500 Feb- Sales 60% of 720000 35% of 720000 432000 | 432000 252000] 252000 Mar - Sales 60% of 735000 441000 441000 429000 652500 693000 1774500 Total Cash Collection Feb Mar **cash Payment for purchases Accounts payable Jan 84000 Quarter 84000 Jan-Sales 70% of 450000 315000 30% of 450000 315000 135000 135000 Feb- Sales 336000 70% of 480000 30% of 480000 336000 144000 144000 Mar - Sales 70% of 600000 420000 420000 399000 471000 564000 1434000 Total Cash Collection