Dilbert Farm Supply is located in a small town in the rural west. Data regarding

Question

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

o Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
o Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $20,300.
o Monthly depreciation is $20,000.
o Ignore taxes.

The difference between cash receipts and cash disbursements for December would be:

  

$93,700

   

$37,900

   

$55,800

   

$17,900

Balance Sheet
October 31 Assets Cash $27,000 Accounts receivable, net of allowance for uncollectible accounts 79,000 Merchandise inventory 101,400 Property, plant and equipment, net of $574,000 accumulated depreciation 1,082,000 Total assets $1,289,400 Liabilities and Stockholders' Equity Accounts payable $169,000 Common stock 740,000 Retained earnings       380,400 Total liabilities and stockholders' equity $1,289,400

Explanation / Answer

Cash receipts 233400 =(260000*19%)+(230000*80%) Cash disbursements: Payment for Novemebr purchases 157300 =(260000*65%)+(230000*65%*60%)-101400 Monthly expenses 20300 Difference 55800 Option 3 is correct

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