Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the pro
ID: 2514544 • Letter: M
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; 30 percent are collected in the following month. Uncollectibles amounting to 10 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.
Sixty percent of the merchandise purchases are paid for in the month of purchase; the remaining 40 percent are paid for in the month after acquisition.
The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $90,000; accounts receivable, $210,000; and accounts payable, $75,000.
Mary and Kay, Inc. maintains a $90,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 10 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:
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.
January February March Sales revenue $ 540,000 $ 630,000 $ 645,000 Merchandise purchases 360,000 390,000 510,000 Cash operating costs 102,000 81,000 144,000 Proceeds from sale of equipment — — 24,000Explanation / Answer
TOTAL CASH COLLECTIONS
TOTAL CASH DISBURSEMENTS
CASH FLOW SCHEDULE
Particulars January February March Opening Cash Balance 90,000 63,000 143,775 Collections from previous month sales 42,000 162,000 189,000 Collections from current month sales 324,000 378,000 387,000 Proceeds from sale of equipment 24,000 Loan taken 27,000 456,000 630,000 743,775