# 2024 – 1 All sales at Meeks Company a wholesaler are made on credit Experience has shown that 70 of the accounts

Accounting Question – 2024

1. All sales at Meeks Company, a wholesaler, are made on credit. Experience has shown that 70% of the accounts receivable are collected in the month of the sale, 26% are collected in the month following the sale, and the remaining 4% are uncollectible.

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March (actual sales)

\$200,000

April

\$300,000

May

\$500,000

June

\$700,000

July

\$400,000

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The company’s cost of goods sold is equal to 60% of sales. All purchases of inventory are made on credit. Meeks Company pays for one half of a month’s purchases in the month of purchase, and the other half in the month following purchase. The company requires that end-of-month inventories be equal to 25% of the cost of goods sold for the next month.

Required:

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a. Compute the amount of cash, in total, which the company can expect to collect in May.

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b. Compute the budgeted dollar amount of inventory which the company should have on hand at the end of April.

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c. Compute the amount of inventory that the company should purchase during the months of May and June.

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d. Compute the amount of cash payments that will be made to suppliers during June for purchases of inventory.

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2. The Fraley Company, a merchandising firm, has planned the following sales for the next four months:

March

April

May

June

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Total budgeted sales

\$50,000

\$70,000

\$90,000

\$60,000

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Sales are made 40% for cash and 60% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:

Month of sale

70%

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First month following month of sale

20%

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Second month following month of sale

8%

Uncollectible

2%

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The company requires a minimum cash balance of \$4,000 to start a month.

Required:

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a. Compute the budgeted cash receipts for June.

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b. Assume the following budgeted data for June:

Purchases

\$52,000

\$10,000

Depreciation

\$8,000

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Equipment purchases

\$15,000

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Cash balance, beginning of June

\$6,000

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Using this data, along with your answer to part (1) above, prepare a cash budget in good form for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month.

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