Question

Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

• Sales are budgeted at $250,000 for November, $230,000 for December, and $220,000 for January.
• Collections are expected to be 60% in the month of sale and 40% in the month following the sale.
• The cost of goods sold is 75% of sales.
• The company would like to maintain ending merchandise inventories equal to 65% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $23,100.
• Monthly depreciation is $14,100.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	22,100
Accounts receivable		72,100
Merchandise inventory		121,875
Property, plant and equipment, net of $574,100 accumulated depreciation		1,096,100
Total assets	$	1,312,175
Liabilities and Stockholders' Equity
Accounts payable	$	256,100
Common stock		822,100
Retained earnings		233,975
Total liabilities and stockholders' equity	$	1,312,175

The difference between cash receipts and cash disbursements for December would be:

Garrison 16e Rechecks 2017-10-03, 2018-07-24

Multiple Choice

• $37,150

• $27,863

• $21,225

• $80,100

Answer 1

	November	December
Sale	$                 250,000	$    230,000
Collection in December
Nov sale collection-40%		$    100,000	250000*40%
Dec sale collection-60%		$    138,000	230000*60%
Total collection		$    238,000
	November	December	January
Sale	$                 250,000	$    230,000	$ 220,000
Cost of goods sold	75%	75%	75%
Cost of goods sold	=250000*75%	=230000*75%	=220000*75%
Cost of goods sold	$                 187,500	$    172,500	$ 165,000
Since merchandise is paid in 1 month lag, Nov month purchase will be paid in December.
November month opening inventory	65% of Nov COGS
November month closing inventory	65% of Dec COGS
November month opening inventory	=187500*65%	$    121,875
November month closing inventory	=172500*65%	$    112,125
November month purchase
November month COGS	$                 187,500
Add Closing inventory	$                 112,125
Less Opening inventory	$               (121,875)
November month purchase to be paid in December	$                 177,750
Difference between cash receipt and cash disbursements for December
Cash receipt	$                 238,000
Less: merchandise payment	$               (177,750)
Less: other monthly cash expense	$                 (23,100)
Difference between cash receipt and cash disbursements	$                   37,150
Hence option A is the correct answer.