Question

Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

o Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for January.

o Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible.

o The cost of goods sold is 65% of sales.

o The company desires to have an ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase. o Other monthly expenses to be paid in cash are $22,000.

o Monthly depreciation is $20,000.

o Ignore taxes.

---------------------------------------------------------------------------------

Balance Sheet October 31

Assets

Cash $13,000

Accounts receivable, net of allowance for uncollectible accounts 77,000

Inventory 197,600

Property, plant and equipment, net of $502,000 accumulated depreciation 992,000

Total assets $1,279,600

Liabilities and Stockholders' Equity:

Accounts payable $240,000

Common stock 780,000

Retained earnings 259,600

Total liabilities and stockholders' equity $1,279,600

---------------------------------------------------------------------------------------

What is the cash balance at the end of December?

Answer 1

Schedule of cash collections and Schedule of purchase budget is prepared first to find out the total cash collections and purchases and then cash budget is prepared to find out the cash balance as on December 31.