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
