Question

Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industrial customers. Data regarding the store's operations follow:

• Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January.
• Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. Beginning November accounts receivable is $74,000.
• The cost of goods sold is 65% of sales.
• The company purchases 60% of its compressed gases in the month prior to the month of sale and 40% in the month of sale. Payments for purchases are made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,900.
• The monthly depreciation is $20,000.
• Ignore income taxes.
• The company has a desired ending cash balance of at least $15,000. It has available line-of-credit for borrowing, if necessary, at 12% interest per annum.

Question A (Weldon) Assume the December beginning cash balance was $15,000. What is the ending cash balance in December?

Question B (Weldon) What is income before taxes for December?

Answer 1

1) Calculate ending Cash balance

Beginning Cash balance	15000
Add: Cash receipt (380000*75%+74000)	359000
Total Cash available	374000
Less: Cash paid to purchase (360000*40%+380000*60%)	372000
Other cash expense	21900
Total Cash disbursement	393900
Cash excess (deficiency)	-19900
Borrow	34900
Ending Cash balance	15000

b) Income before tax

Sales	380000
Cost of goods sold	247000
Gross margin	133000
Operating expense (21900+20000)	41900
Income before tax	91100