Chapter 9, Problem 9.22P

(1)

To determine

Prepare expected cash collections April, May, and June months.

Introduction: Cash collection means the recovery of cash from an individual for which an invoice is generated. Unpaid invoices are meant to be outstanding and are a function of account receivables. Cash collection is a method to compute the amount that a company receives during a month.

Answer to Problem 9.22P

The expected cash collections April, May, and June months in total is $\$1,744,000$

Explanation of Solution

Schedule of expected cash collection	April	May	June	Total
Cash sales	$\$120,000$	$\$180,000$	$\$100,000$	$\$400,000$
Sales on account:
February sales	$\$32,000$	-	-	$\$32,000$
March sales	$\$168,000$	$\$48,000$	-	$\$216,000$
April sales	$\$48,000$	$\$336,000$	$\$96,000$	$\$480,000$
May sales	-	$\$72,000$	$\$504,000$	$\$576,000$
June sales	-	-	$\$40,000$	$\$40,000$
Total cash collection	$\$368,000$	$\$636,000$	$\$740,000$	$\$1,744,000$

Working Notes:

April: $=\$600,000\times 80\%\times 10\%=\$48,000$

  $\begin{array}{l}=\$600,000\times 80\%\times 70\%=\$336,000\\ =\$600,000\times 80\%\times 20\%=\$96,000\end{array}$

May: $=\$900,000\times 80\%\times 10\%=\$72,000$

  $=\$900,000\times 80\%\times 70\%=\$504,000$

June: $=\$500,000\times 80\%\times 10\%=\$40,000$

(2)

To determine

Prepare merchandise purchase budget for all three months and prepare expected cash disbursements for all three months and quarter in total.

Introduction: Cash collection means the recovery of cash from an individual for which an invoice is generated. Unpaid invoices are meant to be outstanding and are a function of account receivables. Cash collection is a method to compute the amount that a company receives during a month.

Answer to Problem 9.22P

Merchandise purchase budget for April is $\$462,000$ , for May is $\$574,000$ , and for June is $\$336,000$ . Expected cash disbursements for April are $\$357,000$ , for June is $\$518,000$ , and for May is $\$455,000$ and quarter in total is $\$1,333,000$ .

Explanation of Solution

1. Merchandise purchase budget for all three months

Particulars	April	May	June
Cost of goods sold	$\$420,000$	$\$630,000$	$\$350,000$
Add: Ending merchandise inventory	$\$126,000$	$\$70,000$	$\$56,000$
	$\$546,000$	$\$700,000$	$\$406,000$
Less: Beginning merchandise inventory	$\$84,000$	$\$126,000$	$\$70,000$
Required inventory purchases	$\$462,000$	$\$574,000$	$\$336,000$

Working Notes:

Ending merchandise inventory:

April: $\$630,000\times 20\%=\$126,000$

May: $\$350,000\times 20\%=\$70,000$

June: $\$280,000\times 20\%=\$56,000$

Beginning merchandise inventory

April: $\$420,000\times 20\%=\$84,000$

May: $\$630,000\times 20\%=\$126,000$

June $\$350,000\times 20\%=\$70,000$

2. Expected cash disbursements for all three months and quarter in total:

Particulars	April	May	June	Quarter
Accounts payable	$\$126,000$			$\$126,000$
April purchase:   $\$462,000\times 50\%$	$\$231,000$	$\$231,000$		$\$462,000$
May purchase:   $\$574,000\times 50\%$		$\$287,000$	$\$287,000$	$\$574,000$
June purchase:   $\$336,000\times 50\%$			$\$168,000$	$\$168,000$
Total cash disbursements	$\$357,000$	$\$518,000$	$\$455,000$	$\$1,333,000$

(3)

To determine

Prepare cash budget for April, May, June, and quarter.

Introduction: Cash collection means the recovery of cash from an individual for which an invoice is generated. Unpaid invoices are meant to be outstanding and are a function of account receivables. Cash collection is a method to compute the amount that a company receives during a month.

Cash budget for April is $\$40,000$ , May is $\$40,000$ , June is $\$57,100$ , and quarter is $\$57,100$

Particulars	April	May	June	Quarter
Beginning cash balances	$\$52,000$	$\$40,000$	$\$40,000$	$\$52,000$
Add: Collections from customers	$\$368,000$	$\$636,000$	$\$740,000$	$\$1,744,000$
Total cash available	$\$420,000$	$\$676,000$	$\$780,000$	$\$1,796,000$
Less: cash disbursements
Purchase for inventory	$\$357,000$	$\$518,000$	$\$455,000$	$\$1,330,000$
Selling expenses	$\$79,000$	$\$120,000$	$\$62,000$	$\$261,000$
Administrative expenses	$\$25,000$	$\$32,000$	$\$21,000$	$\$78,000$
Land purchases		$\$16,000$		$\$16,000$
Dividends paid	$\$49,000$			$\$49,000$
Total cash disbursements	$\$510,000$	$\$686,000$	$\$538,000$	$\$1,734,000$
Excess availability of cash over disbursements	$\left(\$90,000\right)$	$\left(\$10,000\right)$	$\$242,000$	$\$62,000$
Financings:
Borrowings	$\$130,000$	$\$50,000$	$\left(\$180,000\right)$	$\left(\$180,000\right)$
Repayments
Interest ($130,000*1%*3+$50,000*1%*2)			$\left(\$49,000\right)$	$\left(\$49,000\right)$
Total Financing	$\$130,000$	$\$130,000$	$\left(\$184,900\right)$	$\left(\$4,900\right)$
Ending cash balance	$\$40,000$	$\$40,000$	$\$57,100$	$\$57,100$

Answer to Problem 9.22P

Cash budget for April is $\$40,000$ , May is $\$40,000$ , June is $\$57,100$ , and quarter is $\$57,100$

Explanation of Solution

Particulars	April	May	June	Quarter
Beginning cash balances	$\$52,000$	$\$40,000$	$\$40,000$	$\$52,000$
Add: Collections from customers	$\$368,000$	$\$636,000$	$\$740,000$	$\$1,744,000$
Total cash available	$\$420,000$	$\$676,000$	$\$780,000$	$\$1,796,000$
Less: cash disbursements
Purchase for inventory	$\$357,000$	$\$518,000$	$\$455,000$	$\$1,330,000$
Selling expenses	$\$79,000$	$\$120,000$	$\$62,000$	$\$261,000$
Administrative expenses	$\$25,000$	$\$32,000$	$\$21,000$	$\$78,000$
Land purchases		$\$16,000$		$\$16,000$
Dividends paid	$\$49,000$			$\$49,000$
Total cash disbursements	$\$510,000$	$\$686,000$	$\$538,000$	$\$1,734,000$
Excess availability of cash over disbursements	$\left(\$90,000\right)$	$\left(\$10,000\right)$	$\$242,000$	$\$62,000$
Financings:
Borrowings	$\$130,000$	$\$50,000$	$\left(\$180,000\right)$	$\left(\$180,000\right)$
Repayments
Interest ($130,000*1%*3+$50,000*1%*2)			$\left(\$49,000\right)$	$\left(\$49,000\right)$
Total Financing	$\$130,000$	$\$130,000$	$\left(\$184,900\right)$	$\left(\$4,900\right)$
Ending cash balance	$\$40,000$	$\$40,000$	$\$57,100$	$\$57,100$