Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the pro

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:

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

QUESTION 2: Prepare a schedule that discloses the firm’s total cash disbursements for January through March.

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

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

Explanation / Answer

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

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