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.

A. What is the total of the expected cash collections for December?

B. What are merchandise purchases for December?

C. What are disbursements related to merchandise purchases in December?

D. Assume the December beginning cash balance was $15,000. What is the ending cash balance in December?

E. What is income before taxes for December?

Answer 1

a) Expected Cash collection = (380000*75%+74000) = 359000

b) Merchandise purchase = (380000*40%+350000*60%) = 362000

c) Cash paid for purchase = (360000*40%+380000*60%) = 372000

d) 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

e) Income before tax

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