Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and...


Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September while also computing the total cash disbursements for merchandise purchases for the quarter ended September 30th.

Colerain Corporation Balance Sheet June 30
Cash $ 80,000
Accounts receivable 126,000
Inventory 52,000
Plant and equipment, net of depreciation 200,000
Total assets $ 458,000
Liabilities and Stockholders' Equity
Accounts payable $ 61,100
Common stock 300,000
Retained earnings 96,900
Total liabilities and stockholders' equity $ 458,000

Additional assumptions and estimates included in the problem:

Estimated sales for July August September and October will be 200,000, 220,000, 210,000, and 230,000 respectively all sales are on credit, and all credit sales are collected. Each month's credit sales are collected 30% in the month of sale and 70% in the month following the sale.

All of the accounts receivable at June 30 will be collected in July monthly selling, and administrative expenses are always 65,000.

Each month 5,000 of this total amount is depreciation expense, and the remaining 60,000 relates to expenses that are paid in the month they are incurred each months ending inventory must equal 40% of the cost of next months sales.

The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30.

The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Cash Disbursements:

Cash Disbursements are outflows that is expected by the company to settle their obligations to pay the financial expenditure incurred in conducting the normal operations of the business. Cash disbursements can be processed thru cash, checks or from petty cash fund, depending on the company policy. Company must properly maintain and monitor all outflows coming from the payment of expenditure to deter the chances of fraudulent acts from internal and external sources.

Answer and Explanation:

Beg. Inventory + Purchases - Ending Inventory = Cost of Goods Sold
Purchases = Cost of Goods Sold - Beginning Inventory + Ending Inventory
July August September October
Est. Credit Sales 200,000 220,000 210,000 230,000
65% of Sales 65% 65% 65% 65%
Cost of Goods Sold 65% 130,000 143,000 136,500 149,500
Beginning Inventory 60% -52,000 -57,200 -54,600 -59,800
Ending Inventory 40% 57,200 54,600 59,800
Purchases per Month 135,200 140,400 141,700
Payment of Purchases July August September Total
% during the month 50% 67,600 70,200 70,850
% the following month 50% 67,600 70,200
Total Cash Disbursement for Purchases 67,600 137,800 141,050 346,450

Learn more about this topic:

How to Manage Cash Disbursements

from Finance 101: Principles of Finance

Chapter 18 / Lesson 4

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