Posted: July 14th, 2016

What is the importance of record keeping?

16 During January, the company will declare and pay $45,000 in cash dividends.
17 Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:
Using the data above, complete the following statements and schedules for the first quarter:

a Schedule of Expected Cash Collections:
January February March Quarter
Cash sales $80,000
Credit sales $224,000
Total Collections $304,000

b Merchandise purchases budget:

Merchandise Purchases Budget
January February March Quarter
Budgeted Cost of Goods Sold $240,000* $360,000
Add desired ending inventory $90,000**
Total needs $330,000
Less beginning inventory $60,000
Required purchases $270,000

*$400,000 sales x 60% cost ratio = $240,000
** $360,000 x 25% = $90,000

c Schedule of Expected Cash Disbursements-Merchandise Purchases
January February March Quarter
December purchases $93,000 $93,000
January purchases $135,000 $135,000 $270,000
February purchases
March purchases
Total disbursements $228,000

d Complete the following schedule: