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; 30 percent are collected in the following month. Uncollectibles amounting to 10 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.

Sixty percent of the merchandise purchases are paid for in the month of purchase; the remaining 40 percent are paid for in the month after acquisition.

The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $65,000; accounts receivable, $230,000; and accounts payable, $79,000.

Mary and Kay, Inc. maintains a $65,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 9 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:

	jan.	Feb.	march
sales revenue	580,000	670,000	685,000
Merchandise purchases	400,000	430,000	550,000
Cash operating costs	106,000	85,000	148,000
Proceeds from sale of equipment			28,000

QUESTION 1 : Prepare a schedule that discloses the firm’s total cash collections for January through March using the chart below.

	january	february	march
collection of accounts receivable
collection of january sales
collection of february sales
collection of march sales
sale of equipment
total cash collections

QUESTION 2: 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

QUESTION 3: Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

	january	February	March
beginning cash balance
total receipts
subtotal
LESS: total disbursements
Cash Excess (deficiency) before financing
Financing:
Borrowing to maintain 65,000 balance
loan principal repaid
loan interest paid
Ending Cash Balance

Answer 1

Answer
1
	Schedule showing firm’s total cash collections for January through March
					January	February	March
	Collection of accounts receivable				46,000
	Collection of january sales				313,200	208,800
	Collection of february sales					361,800	241,200
	Collection of march sales						369,900
	Sale of equipment						28,000
	Total cash collections				359,200	570,600	639,100
2	Schedule showing firm’s total cash Disbursement for January through March
					January	February	March
	Payment of accounts payable				79,000
	Payment of january purchases				240,000	160,000
	Payment of february purchases					258,000	172,000
	Payment of march purchases						330,000
	Cash operating costs				106,000	85,000	148,000
	Total cash disbursements				425,000	503,000	650,000
3	Schedule Showing the firm’s financing cash flows for January through March.
					January	February	March
	Beginning cash balance				65,000	65,000	65,000
	Total receipts				359,200	570,600	639,100
	Subtotal				424,200	635,600	704,100
	LESS: total disbursements				(425,000)	(503,000)	(650,000)
	Cash Excess (deficiency) before financing				(800)	132,600	54,100
	Financing:
	Borrowing to maintain 65,000 balance      (Bal.Fig)				65,800	4,122	15,393
	loan principal repaid					(65,800)	(4,122)
	loan interest paid					(5,922)	(371)
	Ending Cash Balance				65,000	65,000	65,000
Note
	Here problem is solved on the basis that short term borrowing is setteled in subsequent month