In December of 2012, Jones Inc. was formed as a corporation. The company plans to start its operations in early January of 2013. They have the following purchases budgeted for the first quarter of 2013: Jones has worked out agreements with its various suppliers to pay for one-fourth of a month's purchases each month, beginning in the month of purchase, until the purchases are paid in full. No purchases were made prior to January.
What are expected total cash disbursements for the first quarter of 2013?
A) $425,000
B) $625,000
C) $775,000
D) $350,000

Question

In December of 2012, Jones Inc. was formed as a corporation. The company plans to start its operations in early January of 2013. They have the following purchases budgeted for the first quarter of 2013:  Jones has worked out agreements with its various suppliers to pay for one-fourth of a month's purchases each month, beginning in the month of purchase, until the purchases are paid in full. No purchases were made prior to January.
What are expected total cash disbursements for the first quarter of 2013?
A) $425,000 
B) $625,000 
C) $775,000 
D) $350,000

Quizplus · Accepted Answer

The purchases budgeted for the first quarter of 2013 total $2,450,000 ($750,000 + $900,000 + $800,000). Jones plans to pay for one-fourth of a month's purchases each month, beginning in the month of purchase. Therefore, the cash disbursements for January, February, and March will be as follows:

January: $2,450,000 / 4 = $612,500
February: $2,450,000 / 4 = $612,500
March: $2,450,000 / 4 = $612,500

Therefore, the total cash disbursements for the first quarter of 2013 will be $1,837,500 ($612,500 + $612,500 + $612,500) which is closest to option C, $775,000.