Question

Please use the values from the question submitted.

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, $90,000; accounts receivable, $210,000; and accounts payable, $75,000.

• Mary and Kay, Inc. maintains a $90,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 10 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:

	January			February			March
Sales revenue	$	540,000		$	630,000		$	645,000
Merchandise purchases		360,000			390,000			510,000
Cash operating costs		102,000			81,000			144,000
Proceeds from sale of equipment		—			—			24,000

Required:

1. Prepare a schedule that discloses the firm’s total cash collections for January through March.

2. Prepare a schedule that discloses the firm’s total cash disbursements for January through March.

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

Answer 1

total cash collection from january to march

	january	february	march
current month sale collection	3,24,000	3,78,000	3,87,000
previous month sale collection	-	1,62,000	1,89,000
collection of accounts recievable	42,000	-	-
sales of equipment	-	-	24,000

total

3,66,000

5,40,000

6,00,000

total cash disbursements for January through March.

	january	february	march
current years purchase	2,16,000	2,34,000	3,06,000
previous years purchase	75,000	1,44,000	1,56,000
cash operating cost	1,02,000	81,000	1,44,000
total	3,93,000	4,59,000	6,06,000

assumption :- we assume that in january previous month purchase out standing payment is acounts payable is 40% of previous months total sale

	january	february	march
begining acsh balance	90,000	90,000	1,38,600
total collection	3,66,000	5,40,000	6,00,000
sub total	4,56,000	6,30,000	7,38,600
less :- total paid	3,93,000	4,59,000	6,06,000
Cash excess (deficiency) before financing	63,000	1,71,000	1,32,600
Financin			-
Borrowing to maintain $90,000 balance	27,000	-	-
Loan principal repaid	-	-27,000	-
Loan interest paid	-	-54,00	-
Ending cash balance	90,000	1,38,600	1,32,600

Explanation:

1.Schedule of cash collections:

Collection of accounts receivable: $2,10,000× 20%

Collection of January sales ($5,40,000): 60% in January; 30% in February

Collection of February sales ($6,30,000): 60% in February; 30% in March

Collection of March sales ($6,45,000): 60% in March; 30% in April

2.

Schedule of cash disbursements:

Payment of January purchases ($3,60,000): 60% in January; 40% in February

Payment of February purchases ($3,90,000): 60% in February; 40% in March

Payment of March purchases ($5,10,000): 60% in March; 40% in April

3.

Loan interest paid in February:

27,000 * 10% * 2/12 = 5400