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, 20x0, 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:

	January	February	March
Sales Revenue	630,000	720,000	735,000
Merchandise purchases	450,000	480,000	600,000
Cash operating costs	111,000	90,000	135,000
Proceeds from sale of equipment			33,000

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

Answer 1

		January	February	March
	Payment of accounts payable	84000	-	-
	Payment of January purchases	315000	135000	-
	Payment of February purchases	-	336000	144000
	Payment of March purchases	-	-	420000
	Cash operating costs	111000	90000	135000
	Total cash disbursements	510000	561000	699000
		January	February	March
	Merchandise Purchases	450000	480000	600000
	In the Month of Purchases(70% of Month Purchase)	315000	336000	420000
	In the following Month of Purchases(30% of Previous month purchase)	84000	135000	144000
	Total Payments	399000	471000	564000