Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

• Sales are budgeted at $251,000 for November, $291,000 for December, and $218,000 for January.
• Collections are expected to be 60% in the month of sale and 40% in the month following the sale.
• The cost of goods sold is 75% of sales.
• The company desires to have an ending merchandise inventory at the end of each month equal to 90% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $20,000.
• Monthly depreciation is $25,000.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	26,000
Accounts receivable		81,000
Merchandise inventory		169,425
Property, plant and equipment, net of $624,000 accumulated depreciation		946,000
Total assets	$	1,222,425
Liabilities and Stockholders' Equity
Accounts payable	$	247,000
Common stock		748,000
Retained earnings		227,425
Total liabilities and stockholders' equity	$	1,222,425

The difference between cash receipts and cash disbursements for December would be:

Brewer 8e Rechecks 2019-26-08

Multiple Choice

• $20,750

• $13,750

• $39,750

Answer 1

Cost of goods sold for November	188250	=251000*75%
Add: Desired ending inventory	196425	=291000*75%*90%
Less: Beginning inventory	-169425	=251000*75%*90%
Purchases for November	215250
Collection from November sales	100400	=251000*40%
Collection from December sales	174600	=291000*60%
Cash receipts for December	275000
Payment for November purchases	215250
Other monthly expenses	20000
Cash disbursements for December	235250
Cash receipts for December	275000
Less: Cash disbursements for December	235250
Difference between cash receipts and cash disbursements	39750
Option C $39,750 is correct