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, $75,000; accounts receivable, $195,000; and accounts payable, $72,000.

Mary and Kay, Inc. maintains a $75,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 8 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:

	January			February			March
Sales revenue	$	510,000		$	600,000		$	615,000
Merchandise purchases		330,000			360,000			480,000
Cash operating costs		99,000			78,000			141,000
Proceeds from sale of equipment		—			—			21,000

Required:

Prepare a schedule that discloses the firm’s total cash collections for January through March.

Prepare a schedule that discloses the firm’s total cash disbursements for January through March.

Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

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
Total cash collections

Prepare a schedule that discloses the firm’s total cash disbursements for January through March.

	January	February	March
Payment of accounts payable
Payment of January purchases
Payment of February purchases
Payment of March purchases
Cash operating costs
Total cash disbursements

Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

	January	February	March
Beginning cash balance
Total receipts
Subtotal
Less: Total disbursements
Cash excess (deficiency) before financing
Financing:
Borrowing to maintain $75,000 balance
Loan principal repaid
Loan interest paid
Ending cash balance

Answer 1

Solution:

Schedule that discloses the firm’s total cash collections for January through March

	January	February	March
Collection of accounts receivable ($195,000*20%)	39000
Collection of January sales	306000	178500
Collection of February sales		360000	210000
Collection of March sales			369000
Sale of equipment			21000
Total cash collections	345000	538500	600000

Schedule that discloses the firm’s total cash disbursements for January through March

	January	February	March
Payment of accounts payable	72000
Payment of January purchases	231000	99000
Payment of February purchases		252000	108000
Payment of March purchases			336000
Cash operating costs	99000	78000	141000
Total cash disbursements	402000	429000	585000

Schedule that summarizes the firm’s financing cash flows for January through March

	January	February	March
Beginning cash balance	75000	75000	127120
Total receipts	345000	538500	600000
Subtotal	420000	613500	727120
Less: Total disbursements	402000	429000	585000
Cash excess (deficiency) before financing	18000	184500	142120
Financing:
Borrowing to maintain $75,000 balance	57000	0	0
Loan principal repaid	0	-57000	0
Loan interest paid	0	-380	0
Ending cash balance	75000	127120	142120

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