Question

OKD Company is a trading company. The following financial data are derived from the accounting system in the beginning of April:

	$
Accounts receivable	23,000
Inventory	24,200
Cash (Overdraft)	(7,000)
Dividend payable	1,000
Equipment at cost	80,000
Accumulated depreciation	19,200
Long-term note payable 14%	40,000
Share capital	40,000
Retained earnings	20,000

The company expects the following results during the second quarter of the year (next three months):      

	Sales	Purchases	Expenses including depreciation
	$	$	$
April	150,000	100,000	20,000
May	200,000	150,000	25,000
June	300,000	280,000	30,000

     

The company generates all revenues from sales on account and is able to collect all outstanding balances. Its collection pattern is as follows:        

        80% is collected during the month of sales (a 4% discount is given for payment in this period); and

        the remaining 20% is collected in the following month.

The company pays for its purchase made in the month of purchase in order to take advantage of a 10% settlement discount, calculated on the gross purchase amount presented above. Inventory levels are expected to remain constant throughout the quarter. There is no fluctuation in price when the company purchases its inventory. Depreciation rate of the equipment is 12% on cost per year. Expenses are recorded on a monthly basis. Expenses are paid for in the month in which they are incurred. The declared dividend will be paid in April. There is no repayment of the long-term note during the quarter. Interest on the note for the quarter will be paid in June.

A.    What is the total cash receipts for the quarter?

B.    What is the total cash payments for the quarter?

C.    What is the cash balance at the end of the quarter?

D.    What is the gross profit for the quarter?

E.     What is the net profit for the quarter?

F.     What is the total current assets at the end of the quarter?

G.    What is the total non-current assets at the end of the quarter?

H.    What is the total liabilities at the end of the quarter?

I.      What is the total shareholders’ equity at the end of the quarter?

Answer 1

Solution:

A. Total cash receipts during the quarter

Particulars	Apr	May	Jun	Quarter
Sales $	150,000	200,000	300,000	650,000
80% collection for same month (after 4% discount)	115,200	153,600	230,400	499,200
20% collection of previous month	23,000	30,000	40,000	93,000
Total Sales Collected	138,200	183,600	270,400	592,200

B. Total cash payments during the quarter

Particulars	Apr	May	Jun	Quarter
Purchases (Paid after 10% discount)	90,000	135,000	252,000	477,000
Expenses (after excluding depreciation of 80,000*12%)	10,400	15,400	20,400	46,200
Dividened paid	1,000	-	-	1,000
Interest on note (40,000*14%*3/12)	-	-	1400	-
Total Cash Payments	101,400	150,400	273,800	524,200

C. Closing cash balance

Particulars	Amount in $
Cash opening balance (A)	(7,000)
Cash Receipts (B)	592,200
Cash Payments (C )	524,200
Closing Balance (A+b-C)	61,000

D and E. Gross Profit and Net Profit for the quarter

Particulars			Amount in $
Revenue:
Sales	650,000
Less: Discount	20,800		629,200
Cost:
Purchases	530000
Less: Discount	53,000		477,000
Gross profit			152,200
Expenses (including depreciation)		75,000
Interest expense		1,400	76,400
Net Profit			552,800