Walter Enterprises expects its September sales to be 20% higher than its August

Question

Walter Enterprises expects its September sales to be 20% higher than its August sales of $150,000 Purchases were $100,000 in August and are expected to be $120,000 in September. All sales are on credit and are collected as follows 30% in the month of the sale and 70% in the following month. Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month. The beginning cash balance on September 1 is $7.500. The ending cash balance on September 30 would be Multiple Choice $31,500 $67,500 $54,000 $61,500 $136,500

Explanation / Answer

Solution: Answer is 4th option "$61,500" Working Notes: Ending Cash balance on September 30 = Beginning cash balance + Cash collection during September - Cash payments during September = $7,500 +$159,000 - $105,000 =$166,500 - $105,000 =$61,500 Notes: Calculation for above are given below: Beginning cash balance = $7,500 given Cash collection during September 120% of August August September sales =150,000 x 120% Sales $150,000 =$180,000 Cash collection is 30% in the month of sales & 70% in the month following the sales. Means, During September cash collection will be: =30% x of sales of September + 70% of sales of August =30% x $180,000 + 70% x $150,000 =$54,000 + $105,000 =$159,000 Cash payments during September August September Purchases $100,000 $120,000 Payments are done 25% in the month of purchase & 75% in the month following month: So, Payments in the September = 25% of purchases of September + 75% of Purchase of August Payments in the September = 25% x $120,000 + 75% x $100,000 Payments in the September = 30,000 + $75,000 Payments in the September = $105,000 Please feel free to ask if anything about above solution in comment section of the question.

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