Great Lake Corporation wishes to prepare a cash budget for November 2014.Sales,purchases,and expenses for October (actual)and November and December (estimated)are as follows: Sales: All sales are on credit,and the company's experience shows that,on an average,80 percent of sales are collected in the month of sale and the balance in the following month.A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the following month.The company is allowed an average discount of 1 percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000 and $100 of prepaid expenses,which will expire.All other expenses are paid as incurred.
Other: On September 1,2014,a new machine was purchased for $5,000.A down payment of $500 was made,and it was agreed that the balance would be paid in equal installments in the following three months.
-The cash payments in November for purchases of Great Lake are expected to be

Question

Great Lake Corporation wishes to prepare a cash budget for November 2014.Sales,purchases,and expenses for October (actual)and November and December (estimated)are as follows:  Sales: All sales are on credit,and the company's experience shows that,on an average,80 percent of sales are collected in the month of sale and the balance in the following month.A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the following month.The company is allowed an average discount of 1 percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000 and $100 of prepaid expenses,which will expire.All other expenses are paid as incurred.
Other: On September 1,2014,a new machine was purchased for $5,000.A down payment of $500 was made,and it was agreed that the balance would be paid in equal installments in the following three months.
-The cash payments in November for purchases of Great Lake are expected to be

Quizplus · Accepted Answer

To prepare the cash budget for November, we need to calculate the inflows and outflows of cash for the month.

Inflows of Cash:
- 80% of the November sales: $320,000 x 80% = $256,000
- 2% discount on November sales: $320,000 x 2% = $6,400
Total Inflows of Cash = $256,000 + $6,400 = $262,400

Outflows of Cash:
- Payments for October purchases: $320,000 x 40% = $128,000 (assuming 60% of purchases were paid in October)
- Payments for November purchases: $400,000 x 60% = $240,000 (assuming 60% of purchases were paid in November)
- 1% discount on November purchases: $400,000 x 1% = $4,000
- Depreciation: $1,000
- Prepaid expenses: $100
- Payment for the new machine: $1,500 (assuming $3,500 is still owed in November)
Total Outflows of Cash = $128,000 + $240,000 - $4,000 + $1,000 + $100 + $1,500 = $367,600

Net Cash Outflow = Total Outflows - Total Inflows = $367,600 - $262,400 = $105,200

Therefore, the cash payments in November for purchases of Great Lake are expected to be $17,820 (the answer is C).

Great Lake Corporation Wishes to Prepare a Cash Budget for November