The Grainger Company's budgeted income statement reflects the following amounts: $\begin{array} { | l | c | c | c | c | c | }
\hline & \text { Sales } & & \text { Purchases } & & \text { Expenses } \
\hline \text { January } & \$ 120,000 & & \$ 78,000 & & \$ 24,000 \
\hline \text { February } & 110,000 & & 66,000 & & 24,200 \
\hline \text { March } & 125,000 & & 81,250 & & 27,000 \
\hline \text { April } & 130,000 & & 84,500 & & 28,600 \
\hline
\end{array}$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred.
Grainger's budgeted cash payments in February are:

Question

The Grainger Company's budgeted income statement reflects the following amounts: $\begin{array} { | l | c | c | c | c | c | } 
\hline & \text { Sales } & & \text { Purchases } & & \text { Expenses } \
\hline \text { January } & \$ 120,000 & & \$ 78,000 & & \$ 24,000 \
\hline \text { February } & 110,000 & & 66,000 & & 24,200 \
\hline \text { March } & 125,000 & & 81,250 & & 27,000 \
\hline \text { April } & 130,000 & & 84,500 & & 28,600 \
\hline
\end{array}$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred.
Grainger's budgeted cash payments in February are:

Quizplus · Accepted Answer

To determine the budgeted cash payments for February, we need to consider the following:

1. Purchases made in January: \$78,000
All purchases are paid in the month following purchase, and Grainger takes advantage of a 3% discount, so the actual payment will be:
\$78,000 x 97% = \$75,660.

2. Purchases made in February: \$66,000
All purchases are paid in the month following purchase, and Grainger takes advantage of a 3% discount, so the actual payment will be:
\$66,000 x 97% = \$64,020.

3. Expenses for February: \$24,200
All expenses are paid in the month incurred, so the payment will be \$24,200.

4. Accounts payable balance as of January 1: \$72,000
This balance needs to be adjusted for the purchases made in January and February, and the discount taken:
\$72,000 + \$78,000 x 3% + \$66,000 x 3% - \$75,660 - \$64,020 = \$6,120

5. Collections for January sales: \$120,000 x 50% = \$60,000
\$35,000 of the accounts receivable balance will be collected in January, so the remaining amount to be collected in February is:
\$58,000 - \$35,000 = \$23,000
\$23,000 is 30% of February sales, so we can calculate February sales as:
February sales = \$23,000 / 30% = \$76,667
Total February sales = \$66,000 + \$76,667 = \$142,667

6. Collections for February sales: \$120,000 x 30% = \$36,000
\$76,667 of February sales will be collected in March, so the remaining amount to be collected in April is:
\$142,667 - \$76,667 = \$66,000
\$66,000 is 19% of April sales, so we can calculate April sales as:
April sales = \$66,000 / 19% = \$347,368
Total April sales = \$130,000 + \$347,368 = \$477,368

7. Depreciation: \$5,000

Now we can calculate the total cash payments for February:
Cash payments = Purchases in January + Purchases in February + Expenses for February - Adjusted accounts payable balance + Collections for January sales + Collections for February sales + Depreciation
Cash payments = \$75,660 + \$64,020 + \$24,200 - \$6,120 + \$60,000 + \$36,000 + \$5,000
Cash payments = \$97,760

Therefore, the answer is B) \$94,860.

The Grainger Company's Budgeted Income Statement Reflects the Following Amounts