Question

Essay II Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industrial customers. Data regarding the store's operations follow:

• Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January.
• Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. Beginning November accounts receivable is $74,000.
• The cost of goods sold is 65% of sales.
• The company purchases 60% of its compressed gases in the month prior to the month of sale and 40% in the month of sale. Payments for purchases are made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,900.
• The monthly depreciation is $20,000.
• Ignore income taxes.
• The company has a desired ending cash balance of at least $15,000. It has available line-of-credit for borrowing, if necessary, at 12% interest per annum.

Use this information to answers questions A - E below.

Question A (Weldon) What is the total of the expected cash collections for December

Question B (Weldon) What are merchandise purchases for December?

Question C (Weldon) What are disbursements related to merchandise purchases in December?

Question D (Weldon) Assume the December beginning cash balance was $15,000. What is the ending cash balance in December?

Question E (Weldon) What is income before taxes for December?

Answer 1

A.

	December
November sales ($360,000*20%)	$72,000
December sales ($380,000*75%)	285,000
Total cash collections	$357,000

B.

Merchandise purchases for December = $380,000*65%*40%(December) + $350,000*65%*60% (January)

Merchandise purchases for December = $98,800 + 136,500 = $235,300

C.

Cash disbursements for Merchandise purchases for December = $380,000*65%*60%(December) + $360,000*65%*40%(November)

Cash disbursements for Merchandise purchases for December = $148,200 + $93,600 = $241,800

D.

	December
Cash receipts:
Add: Cash collections	357,000
Total cash receipts	357,000
Less: Cash payments:
Merchandise payments	241,800
Other expenses	21,900
Total cash payments	263,700
Excess of cash receipts over payments	93,300
Beginning cash balance	15,000
Ending cash balance	$108,300

E.

	December
Sales	$380,000
Less; Cost of goods sold ($380,000*65%)	247,000
Gross margin	133,000
Less: Operating expenses:
Depreciation	20,000
Other expenses	21,900
Income before taxes	$91,100