Pluto, Inc. has a beginning cash balance of $430 on February 1st. The firm has p
ID: 2680777 • Letter: P
Question
Pluto, Inc. has a beginning cash balance of $430 on February 1st. The firm has projected sales of $600 in January, $800 in February and $900 in March. The cost of goods sold is equal to 70% of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 15 days. The firm has monthly cash expenses of $180. What is the projected ending cash balance at the end of February? Assume that every month has 30 days.A. $150
B. $360
C. $390
D. $450
E. $570
Please show how work.
Explanation / Answer
C. $390 Sales are paid in 15 days, so assume 1/2 of Jan sales are not collected until March, and 1/2 of Feb sales are not collected until April. So March cash inflow from Sales will be 600 x .5 and 800 x .5, a total of $700. Purchases, @ 70% of sales, are made one month in advance, and paid 30 days later. So Jan purchases of Feb sales (800 x 70%) or 560 were paid in March (30 days later). March Cash - Beg Bal 430 plus collections of 700 minus purchases paid of 560 minus cash expenses of 180 = $390 Ending Balance