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; 35 percent are collected in the following month. Uncollectibles amounting to 5 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.

Seventy percent of the merchandise purchases are paid for in the month of purchase; the remaining 30 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, $175,000; and accounts payable, $68,000.

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:

***Explanations are greatly appreciated! Thanks!

Sales revenue Merchandise purchases Cash operating costs Proceeds from sale of equipment $470,000 290,000 95,000 January February $560,000 320,000 74,000 March $575,000 440,000 137,000 17,000 Required 1. Prepare a schedule that discloses the firm's total cash collections for January through March 2. Prepare a schedule that discloses the firm's total cash disbursements for January through March 3. Prepare a schedule that summarizes the firm's financing cash flows for January through March Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Prepare a schedule that discloses the firm's total cash collections for January through March January February March Collection of accounts receivable Collection of January sales Collection of February sales Collection of March sales Sale of equipment 164,500 Total cash collections $ 164,500$

Explanation / Answer

SOLUTION

(1) Schedule for total cash collection-

(2) Schedule for cash disbursement-

January ($) February ($) March ($) Collection of accounts receivable ($175,000*20%) 35,000 Collection of January sales ($470,000*60%), ($470,000*35%) 282,000 164,500 Collection of February sales ($560,000*60%), ($560,000*35%) 336,000 196,000 Collection of March sales ($575,000*60%) 345,000 Sale of equipment 17,000 Total cash collections 317,000 500,500 558,000

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