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, $75,000; accounts receivable, $240,000; and accounts payable, $81,000. • Sophisticates, Inc., maintains a $75,000 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:

2)

January February March   Sales revenue $ 600,000 $ 690,000 $ 705,000   Merchandise purchases 420,000 450,000 570,000   Cash operating costs 108,000 87,000 150,000   Proceeds from sale of equipment — — 30,000 1) January February March Collection of accounts receivable Collection of January sales Collection of February sales Collection of March sales Sale of equipment Total cash collections

Explanation / Answer

JAN FEB MARCH Collections from Accounts rec. 48000 Colelctions from Jan sales 360000 180000 Collections from Feb Sales 414000 207000 Collections from march sales 423000 Sale of equipment 30000 Total Cash collections 408000 594000 660000 Jan Feb March Payment of Accounts payable 81000 Payment of jan Purchases 252000 168000 Payment of Feb Purchases 270000 180000 Paymente of March Purchases 342000 Cash operating cost 108000 87000 150000 Total cash disbursement 441000 525000 672000 CASH BUDGET: JAN FEB MARCH Beginning Balance of cash 75000 75000 110505 Add: Collections 408000 594000 660000 Total Cash avaialable 483000 669000 770505 Disbursements 441000 525000 672000 Excess/Defficiency) 42000 144000 98505 Borrowings 33000 0 Repayment -33000 0 Interest Paid -495 Total Financing 33000 0 0 cash balance ending 75000 110505 98505

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