Sophisticates, Inc., a distributor of jewelry throughout California, is in the p

Question

Sophisticates, Inc., a distributor of jewelry throughout California, 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, $60,000; accounts receivable, $180,000; and accounts payable, $69,000.

Sophisticates, Inc., maintains a $60,000 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.

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

Prepare a schedule that discloses the firm’s cash needs, if any, for January through March.

Sophisticates, Inc., a distributor of jewelry throughout California, 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:

Explanation / Answer

Particulars Jan Feb Mar Sales Revenue 480000 570000 585000 (All Credit) Particulars Jan Feb Mar Collection of A/R 36000 0 0 180000*20% Collection of Jan Sales 288000 144000 0 60% in same month Collection of Feb Sales 0 342000 171000 30% in following month Collection of Mar Sales 0 0 351000 30% in following month Sales of Equipment 0 0 18000 Given Total Cash Collections 324000 486000 540000 Particulars Jan Feb Mar Purchases 300000 330000 450000 Disbursement Schedule: Jan Feb Mar Payments of A/P 69000 0 0 Payments of Jan Purchases 180000 120000 0 60% in same month Payments of Feb Purchases 0 198000 132000 40% in following month Payments of Mar Purchases 0 0 270000 Cash Operating Costs 96000 75000 138000 Given Total Cash Disbursements 345000 393000 540000 Cash Budget: January February March Beginning Cash Balance 60000 60000 131842.5 Total Receipts 324000 486000 540000 Subtotal 384000 546000 671842.5 Less: Total Disbursements 345000 393000 540000 Cash excess (deficiency) before financing 39000 153000 131842.5 January February March Financing: 60000-39000 Borrowing to maintain $60,000 balance 21000 0 0 Loan principal repaid 0 21000 0 21000 Loan interest paid 0 157.5 0 21000*9%*1/12 Ending Cash Balance 60000 131842.5 131842.5

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