Question

Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

o Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for January.
o Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $22,000.
o Monthly depreciation is $20,000.
o Ignore taxes.

Balance Sheet October 31
Assets
Cash	$13,000
Accounts receivable, net of allowance for uncollectible accounts	77,000
Inventory	197,600
Property, plant and equipment, net of $502,000 accumulated depreciation	992,000
Total assets	$1,279,600
Liabilities and Stockholders' Equity
Accounts payable	$240,000
Common stock	780,000
Retained earnings	259,600
Total liabilities and stockholders' equity	$1,279,600

The cash balance at the end of December would be:   

A.

$182,400

B.

$114,400

C.

$13,000

D.

$195,400

Answer 1

			IN USD
Particulars		Nov	Dec
Sales		3,80,000	3,90,000
Inflows
Sales collection 75% in the month of sale Nov-380000*75%;390000*75%;400000*75%		2,66,000	2,73,000
sales collection 27% in the month following the sale Nov-given ;For december-380000*27% For january-390000*27%		77,000	1,02,600
Less:
Payments to merchandise-working-01 below		-240000	-252200
Other monthly expenses-given		-22000	-22000
Net cash inflows/outflows (P)		81,000	1,01,400
Opening cash given for nov (Q) and for Dec will be closing of nov		13000	94,000
Closing cash (P+Q)		94,000	1,95,400
Therefore closing cash would be 195400 USD Option D is correct
Purchases calculation
				In USD
Particulars		Nov	Dec	Jan
Sales		3,80,000	3,90,000	4,00,000
Cost of goods sold-65% of sales (A)		2,47,000	2,53,500	2,60,000
opening stock-Nov opening stock given and for dec closing stock of nov will be opening of Dec (B)		1,97,600	2,02,800	2,08,000
closing stock- 80% of the following month's cost of goods sold. For nov-253500*80% For Dec closing stock-260000*80%(C )		2,02,800	2,08,000
Purchases(A-B+C)		2,52,200	2,58,700
Payment for merchandise is made in the month following the purchase.
therefore For nov-240000 given For Dec-252200 above calcualted		240000	252200
Remarks*
Depreciation is non cash item hence not considered for cash balance calculation