Question

In: Accounting

Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made...

Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made for the desert heat. It sells to individuals as well as local companies that coordinate adventure getaways in the desert for tourists. The following information is available for several months of the current year:

Month Sales Purchases Cash Expenses Paid
May $ 99,000 $ 70,000 $ 21,000
June 122,000 90,000 26,500
July 139,000 117,000 34,000
August 128,000 72,000 29,400

The majority of Martin’s sales (70 percent) are cash, but a few of the excursion companies purchase on credit. Of the credit sales, 30 percent are collected in the month of sale and 70 percent are collected in the following month. All of Martin’s purchases are on account with 45 percent paid in the month of purchase and 55 percent paid the following month.

Required:

1. Determine budgeted cash collections for July and August.

2. Determine budgeted cash payments for July and August.

Solutions

Expert Solution

Answer

1.

Cash Collection

July

August

June

    25,620.00

                  -  

July

109,810.00

    29,190.00

August

                  -  

101,120.00

Working

It is mentioned that 70% of the sale is made in cash and of remaining 30%, 30% will be received in sale month and 70% in the following month.

Cash Collection

July

August

June

= ($122,000*30%*70%)

0

July

= ($139,000*70%)+($139,000*30%*30%)

= ($139,000*30%*70%)

August

0

= ($128,000*70%)+($128,000*30%*30%)

2.

Cash Payment

July

August

Purchases

June

     49,500.00

                   -  

July

     52,650.00

     64,350.00

August

     32,400.00

     39,600.00

Expenses

     34,000.00

     29,400.00

Total Cash Payments

168,550.00

133,350.00

Working

It is mentioned that 45% of the Purchases is paid in month of purchase and of remaining 45% will be Paid in following month.

Cash Payment

July

August

Purchases

June

= ($90,000*55%)

0

July

= ($117,000*45%)

= ($117,000*55%)

August

= ($72,000*45%)

= ($72,000*55%)

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