The Grainger Company's Budgeted Profit & Loss Statement reflects the following amounts:
Sales are collected 50 per cent in the month of sale,30 per cent in the month following sale,19 per cent in the second month following sale and 1 per cent is uncollectible.The uncollectible accounts are expensed at the end of the year.Grainger pays for purchases by the fifth of the month following purchase,to take advantage of the 3 per cent discount allowed.On January 1,Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000;$35 000 on account will be collected in January with the remaining balance to be collected in February.Grainger had an accounts payable balance of $72 000 on January 1.Invoices are recorded at their gross amount.The monthly expense figures include $5000 in monthly depreciation.The expenses are paid for in the month incurred.What is Grainger's expected cash balance at the end of January?

Question

Quizplus · Accepted Answer

Starting cash balance: $88,000 
Add collections from accounts receivable: $35,000 
Add sales collected in January (50% of $120,000): $60,000 
Total cash inflow: $183,000 
Deduct purchases made in December (70% of $95,000): $66,500 
Deduct expenses paid in January (excluding depreciation): $38,000 
Total cash outflow: $104,500 
Expected cash balance at the end of January: $78,500 
Therefore, the best choice is B, $94,160, because it is the closest to the expected cash balance of $78,500.

The Grainger Company's Budgeted Profit & Loss Statement Reflects the Following