Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be:

46. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be:

            A)      $47,000

            B)      $221,000

            C)      $45,000

            D)      $1,000

           

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

            Solution:

            Excess cash available = Beginning cash balance + Cash receipts − Cash disbursements = $46,000 + $175,000 − $174,000 = $47,000

      47. Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:

            A)      $0

            B)      $4,000

            C)      $56,000

            D)      $30,000

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  8     Level:  Easy

            Solution:

            Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $35,000 + $142,000 − $151,000 = $26,000

            Amount borrowed = Desired ending cash balance − Actual ending cash balance

            = $30,000 − $26,000 = $4,000

      48. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the following information:

           

	Expected cash receipts..............................	$39,400
	Expected disbursements:
	Direct materials......................................	$12,000
	Direct labor............................................	$9,000
	Manufacturing overhead........................	$11,500
	Selling and administrative expenses......	$22,000

            The beginning cash balance will be $6,000 and the company requires a minimum cash balance at the end of the month of $5,000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month?

            A)      $9,100

            B)      $14,100

            C)      $20,100

            D)      None of the above.

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  8     Level:  Easy

            Solution:

            Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $6,000 + $39,400 − ($12,000 + $9,000 + $11,500 + $22,000)

            = $45,400 − $54,500 = ($9,100)

            Amount borrowed = Desired ending cash balance − Actual ending cash balance

            = $5,000 − ($9,100) = $14,100

Use the following to answer questions 49-50:

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.

		May	June	July
		(actual)	(budget)	(budget)
	Sales............................................................	$42,000	$40,000	$45,000
	Less cost of goods sold...............................	21,000	20,000	22,500
	Gross margin...............................................	21,000	20,000	22,500
	Less selling and administrative expenses...	20,000	20,000	20,000
	Net operating income.................................	$ 1,000	$        0	$ 2,500

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.)     The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale.

      49. The amount of cash collected during the month of June should be:

            A)      $32,000

            B)      $40,000

            C)      $40,400

            D)      $41,000

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  2     Level:  Easy     Source:  CMA, adapted

            Solution:

           

	June sales ($40,000 × 80%)................	$32,000
	May sales ($42,000 × 20%)................	8,400
	Total....................................................	$40,400

      50. The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be:

            A)      $40,000

            B)      $41,000

            C)      $42,500

            D)      $43,500

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3,4     Level:  Easy     Source:  CMA, adapted

            Solution:

           

	May purchases of goods..................................	$21,000
	June selling and administrative expenses........	20,000
	Total................................................................	$41,000

Use the following to answer questions 51-59:

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

·       Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.

·       Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2% uncollectible.

·       The cost of goods sold is 80% of sales.

·       The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchase.

·       Other monthly expenses to be paid in cash are $21,100.

·       Monthly depreciation is $21,000.

·       Ignore taxes.

	Statement of Financial Position
	October 31
	Assets:
	Cash...............................................................................................	$    25,000
	Accounts receivable (net of allowance for uncollectible accounts)............................	77,000
	Inventory.......................................................................................	162,400
	Property, plant and equipment (net of $624,000 accumulated depreciation).............................	1,026,000
	Total assets....................................................................................	$1,290,400
	Liabilities and Stockholders’ Equity:
	Accounts payable..........................................................................	$   239,000
	Common stock..............................................................................	740,000
	Retained earnings..........................................................................	311,400
	Total liabilities and stockholders’ equity......................................	$1,290,400

      51. Expected cash collections in December are:

            A)      $310,000

            B)      $95,700

            C)      $297,200

            D)      $201,500

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  2     Level:  Hard

            Solution:

           

	December sales ($310,000 × 65%).....	$201,500
	November sales ($290,000 × 33%)....	95,700
	Total....................................................	$297,200

      52. The cost of December merchandise purchases would be:

            A)      $248,000

            B)      $232,000

            C)      $117,600

            D)      $192,000

           

            Ans:  D     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Hard

            Solution:

           

		Sales	Cost of Goods Sold
	November...........................................	$290,000	$232,000
	December............................................	$310,000	$248,000
	January................................................	$210,000	$168,000

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)

= $117,600 + $248,000 − $173,600 = $192,000

      53. December cash disbursements for merchandise purchases would be:

            A)      $192,000

            B)      $243,200

            C)      $117,600

            D)      $248,000

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Hard

            Solution:

           

		Sales	Cost of Goods Sold
	November...........................................	$290,000	$232,000
	December............................................	$310,000	$248,000
	January................................................	$210,000	$168,000

December cash disbursements = 70% of December Cost of Goods Sold + 30% of November Cost of Good Sold = (70% × $248,000) + (30% × $232,000)

= $173,600 + $69,600 = $243,200

      54. The excess (deficiency) of cash available over disbursements for December would be:

            A)      $46,600

            B)      $19,200

            C)      $13,700

            D)      $32,900

           

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

            Solution:

            Cash collections − Cash disbursements − Other monthly expenses

            = $297,200 − $243,200 − $21,100 = $32,900

      55. The net income for December would be:

            A)      $13,700

            B)      $32,900

            C)      $40,900

            D)      $19,900

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  9     Level:  Hard

            Solution:

           

	Sales....................................................	$310,000
	Less uncollectible ($310,000 × 2%)...	6,200
	Net sales..............................................	303,800
	Cost of goods sold ($310,000 × 80%)	248,000
	Other expenses....................................	21,100
	Depreciation expenses........................	21,000
	Net income..........................................	$  13,700

      56. The cash balance at the end of December would be:

            A)      $63,300

            B)      $25,000

            C)      $57,900

            D)      $38,300

           

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

            Solution:

           

		November	December
	October Accounts Receivable Balance ....	$  77,000
	Collection of November Sales..................
	$290,000 × 65%.....................................	188,500
	$290,000 × 33%.....................................		$  95,700
	Collection of December Sales...................
	$310,000 × 65%.....................................		201,500
	October Accounts Payable Balance..........	(239,000)
	Payment for November Purchases............
	($290,000 × 80%) × 30%.......................		(69,600)
	($310,000 × 80%) × 70%.......................		(173,600)
	Other cash monthly expenses....................	(21,100)	(21,100)
	Net cash inflow(outflow) per month.........	$   5,400	$  32,900

	Beginning cash balance, October 31........................	$25,000
	Add November net cash inflow................................	5,400
	Add December net cash inflow................................	32,900
	Ending cash balance, December 31.........................	$63,300

      57. The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

            A)      $102,300

            B)      $198,000

            C)      $83,200

            D)      $108,500

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  10     Level:  Hard

            Solution:

           

            From December sales ($310,000 × 33%): $102,300

      58. Accounts payable at the end of December would be:

            A)      $192,000

            B)      $248,000

            C)      $117,600

            D)      $74,400

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  10     Level:  Hard

            Solution:

           

		Sales	Cost of Goods Sold
	November...........................................	$290,000	$232,000
	December............................................	$310,000	$248,000
	January................................................	$210,000	$168,000

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)

= $117,600 + $248,000 − $173,600 = $192,000

      59. Retained earnings at the end of December would be:

            A)      $325,100

            B)      $311,400

            C)      $335,200

            D)      $347,200

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  10     Level:  Hard

            Solution:

            Net income in November:

	Sales....................................................	$290,000
	Less uncollectible ($290,000 × 2%)...	5,800
	Net sales..............................................	284,200
	Cost of goods sold ($290,000 × 80%)	232,000
	Other expenses....................................	21,100
	Depreciation expenses........................	21,000
	Net income..........................................	$  10,100

Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $311,400 + $10,100 + $13,700 = $335,200