Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:

Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:

		Sales	Inventory Purchases
	January..................	$120,000	$60,000
	February................	$100,000	$78,000
	March....................	$130,000	$90,000

Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.

The company expects sales in April of $150,000 and inventory purchases of $100,000. Selling and administrative expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining selling and administrative expenses are variable with respect to the amount of sales in dollars. Those selling and administrative expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March 1 was $43,000, and on April 1 was $35,000.

      64. The expected cash collections from customers during April would be:

            A)      $150,000

            B)      $137,000

            C)      $139,000

            D)      $117,600

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  2     Level:  Medium

            Solution:

           

	April sales ($150,000 × 60%).............	$  90,000
	March sales ($130,000 × 30%)...........	39,000
	February sales ($100,000 × 8%).........	8,000
	Expected cash collections...................	$137,000

      65. The expected cash disbursements during April for inventory purchases would be:

            A)      $100,000

            B)      $97,000

            C)      $90,000

            D)      $87,300

           

            Ans:  D     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  2     Level:  Easy

            Solution:

           

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)

= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

      66. The expected cash disbursements during April for selling and administrative expenses would be:

            A)      $38,000

            B)      $30,000

            C)      $23,000

            D)      $15,000

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  7     Level:  Easy

            Solution:

           

            Expected cash disbursements during April for selling and administrative expenses = Total selling and administrative expenses − Depreciation

            = $38,000 − $8,000 = $30,000

      67. The expected cash balance on April 30 would be:

            A)      $54,700

            B)      $62,700

            C)      $19,700

            D)      $28,700

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  8     Level:  Hard

            Solution:

           

	April sales ($150,000 × 60%).............	$  90,000
	March sales ($130,000 × 30%)...........	39,000
	February sales ($100,000 × 8%).........	8,000
	Expected cash collections...................	$137,000

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)

= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

Expected cash disbursements = Total selling and administrative expenses − Depreciation = $38,000 − $8,000 = $30,000

Expected cash balance = Beginning cash balance + Total cash receipts − Expected cash disbursements for inventory purchases − Expected cash disbursements for selling and administrative expenses

= $35,000 + $137,000 − $87,300 − $30,000

= $35,000 + $19,700 = $54,700