Question

The following data have been extracted from the financial statements of Prentiss, Inc., a calendar-year merchandising corporation: December 31, Balance Sheet Data 2017 2018 Trade accounts receivable-net 78,000 140,000 (98,000) 84,000 150,000 (95,000) Inventory Accounts payable-merchandise (credit) Total sales for 2018 were $1,200,000 and for 2017 were $1,100,000. Cash sales were 20 % of total sales each year Cost of goods sold was $840,000 for 2018. Variable general and administrative (G&A) expenses for 2018 were $120,000. These expenses are the same proportion of sales every year and have been paid at the rate of 50% in the year incurred and 50% the following year. Unpaid G&A expenses are not included in accounts payable. Fixed G&A expenses, including $35,000 depreciation and $5,000 bad debt expense, totaled $100,000 each year. The amount of such expenses involving cash payments was paid at the rate of 80% in the year incurred and 20% the following year. In each year, there was a $5,000 bad debt estimate and a $5,000 write-off. Unpaid G&A expenses are not included in accounts payable. Required: Compute the following: 1. The amount of cash collected during 2018 that resulted from total sales 2017 and 2018. 2. The amount of cash disbursed during 2018 for purchases of merchandise. 3. The amount of cash disbursed during 2018 for variable and fixed G&A expenses.

Answer 1

1). Amount of cash collected during 2018:
Account Receivables of 2017 = $84,000
Cash Collected from sales of 2018 = Total Sales - Ending account receivables - Bad debts written off
= $1,200,000 - $78,000 - $5,000
= $1,117,000

Total Cash collected = $84,000 + $1,117,000 = $1,201,000

2). Amount of cash disbursed in 2018 for purchases.
Accounts payable for 2017 = $95,000
Payment of COGS of 2018 = Total COGS - Ending accounts payable
= $840,000 - $98,000
= $742,000

Total cash disbursed = $95,000 + $742,000 = $837,000

3). Amount of cash disbursed in 2018 for G&A expenses.
Variable G&A expenses paid:
of 2017 = $120,000 * $1,100,000 / $1,200,000 = $110,000 * 50% = $55,000
of 2018 = $120,000 * 50% = $60,000
Total Variable expenses paid = $115,000

Fixed G&A expenses paid:
2017 = ($100,000 - $35,000 - $5,000) * 20% = $12,000
2018 = ($100,000 - $35,000 - $5,000) * 80% = $48,000
Total fixed expenses paid = $60,000

Total variable and fixed G&A expenses paid = $115,000 + $60,000 = $175,000