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.

• 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, $80,000; accounts receivable, $260,000; and accounts payable, $85,000.

• Mary and Kay, Inc. maintains a $80,000 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:

	January			February			March
Sales revenue	$	640,000		$	730,000		$	745,000
Merchandise purchases		460,000			490,000			610,000
Cash operating costs		112,000			91,000			154,000
Proceeds from sale of equipment		—			—			34,000

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

	January February March Collection of accounts receivable Collection of January sales Collection of February sales Collection of March sales Sale of equipment Total cash collections $0 $0 $0

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

	January February March Payment of accounts payable Payment of January purchases Payment of February purchases Payment of March purchases Cash operating costs Total cash disbursements $0 $0 $0

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

	January February March Beginning cash balance Total receipts Subtotal $0 $0 $0 Less: Total disbursements Cash excess (deficiency) before financing $0 $0 $0 Financing: Borrowing to maintain $80,000 balance

Answer 1

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

	January	February	March
Collection of accounts receivable	$ 52,000.00
Collection of January sales	$384,000.00	$ 224,000.00
Collection of February sales		$ 438,000.00	$ 255,500.00
Collection of March sales			$ 447,000.00
Sale of equipment			$ 34,000.00
Total cash collections	$436,000.00	$ 662,000.00	$ 736,500.00

Workings

	January	February	March
Collection of accounts receivable	=260000*0.2
Collection of January sales	=640000*0.6	=640000*0.35
Collection of February sales		=730000*0.6	=730000*0.35
Collection of March sales			=745000*0.6
Sale of equipment			34000
Total cash collections	=+B6+B5+B4+B3+B2	=+C6+C5+C4+C3+C2	=+D6+D5+D4+D3+D2

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

	January	February	March
Payment of accounts payable	$ 85,000.00
Payment of January purchases	$276,000.00	$ 184,000.00
Payment of February purchases		$ 294,000.00	$ 196,000.00
Payment of March purchases			$ 366,000.00
Cash operating costs	$112,000.00	$ 91,000.00	$ 154,000.00
Total cash disbursements	$473,000.00	$ 569,000.00	$ 716,000.00

Workings

	January	February	March
Payment of accounts payable	85000
Payment of January purchases	=460000*0.6	=460000*0.4
Payment of February purchases		=490000*0.6	=490000*0.4
Payment of March purchases			=610000*0.6
Cash operating costs	112000	91000	154000
Total cash disbursements	=SUM(B12:B16)	=SUM(C12:C16)	=SUM(D12:D16)

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

	January	February	March
Beginning cash balance	$    80,000.00	$    80,000.00	$ 135,445.00
Total receipts	$ 436,000.00	$ 662,000.00	$ 736,500.00
Subtotal	$ 516,000.00	$ 742,000.00	$ 871,945.00
Less: Total disbursements	$ 473,000.00	$ 569,000.00	$ 716,000.00
Cash excess (deficiency) before financing	$    43,000.00	$ 173,000.00	$ 155,945.00
Financing:			0
Borrowing to maintain $80,000 balance	$    37,000.00		$ 155,945.00
Loan principal repaid		- $37000	0
Loan interest paid		- $555	0
Ending cash balance	$    80,000.00	$ 135,445.00	$ 155,945.00

interest Calculation 37000*9%/12 * 2 month -$555