Question

In: Accounting

Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the process of assembling...

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

Solutions

Expert Solution

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

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