Question

The Mayne Lumber Co. sells lumber and building supplies to builders and the general public. Actual sales for October and November were $18,000 and $25,000, respectively. Projected sales are $30,000 for December, $15,000 for January, and $12,000 for February. Sales terms call for a 2% discount for cash sales. Credit sales are due by the end of the month after purchase. Experience suggests that 60% of the sales are for cash, 70% of the credit sales will pay at the appropriate time, 20% of the credit sales will pay one month late, and 10% of the credit sales are never paid.

Fifty percent (50%) of merchandise purchases are paid in the month of purchase and the remainder is paid in the next month. Target ending inventories are 200 units plus 50% of next month's unit sales. The unit selling price is $10 and the unit purchase cost is $7. Selling and administrative expenses total $4,000 per month and are paid in the month in which they are incurred. Finally, a partial trial balance on December 1, reveals a cash balance of $2,000, accounts payable balance of $9,625 (reflecting the balance outstanding from November purchases), and an inventory balance of $11,900.

Required:                       

Determine Mayne's cash balance at the end of December.

Answer 1

Particulars	Amount	Amount
Beginning balance		$            2,000
Add:
Nov sales collections	$            1,440
[18000 × 40% × 20%]
Dec cash sales	$          17,640
[30000 × 60% × 98%
Dec credit sales collection	$            8,400
[30000 × 40% × 70%
Gross collections	$          27,480	$          27,480
Less:
Beginning payables paid	$            9,625
Dec purchases paid	$            7,875
Selling and adm expenses	$            4,000
Total payments	$          21,500	$         (21,500)
Cash balance		$            7,980

Purchases	Units
Sales for Dec [$30,000/$10]	3,000
Add: required inventory	950
[200 + 1,500/2]
Less:
Beginning units $11,900/$7	(1,700)
Purchases	2,250
× price per unit	$                    7
Purchases	$          15,750
Payment in December (50%)	$            7,875

Cash balance is $7,980.

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