Cash Disbursements and Retained Earnings Question Accounting Need Help

Question

The following data have been taken from the budget reports of Sequioia Company, a merchandising company, which purchases merchandise inventory and sells to customers. The information on the sales to customers and the purchase of the inventory is given below:

January : Sales : 100,000 Purchases : 160,000

February : Sales : 200,000 Purchases : 160,000

March : Sales : 240,000 Purchases : 160,000

April : Sales : 280,000 Purchases : 154,000

May : Sales : 260,000 Purchases : 140,000

Additional Information :

The % of purchases paid for cash at the time of purchase : 40%

The % of purchases paid in the next month after purchase : 30%

The % of purchases paid in the second month after purchase : 30%

Purchases for November and December in the previous year : $150,000 per month

The Cost of Goods Sold is 60% of sales

Collections are expected as follows : 60% in month of sale, 40% in month following the sale

Employee wages are 10% of sales for the month in which the sales occur and are paid during the month

Other administrative expenses are 20% of the following month's sales and the entire amount is paid during the current month. The amount includes depreciation expense for the office equipment of $13,000.

Interest payments of $2,100 are paid quarterly in January and April (monthly interest is $700).

Sequoia is planning to declare cash dividends in April to be paid in May : $10,000

The balance in retained earnings is expected to be $210,000 on March 31.

 

Question 1) Cash disbursements for the month of April would be ?

A) 215,200 B) 75,200 C) 157,600 D) 226,700 E) None

Answer was D) but I need help with steps as to how.

 

Question 2) What would be expected balance in Retained Earnings as of April 30th?

A) 275,600 B) 231,300 C) 241,300 D) 242,000 E) None

 

Answer was B) but I need help with steps as to how.

Answer 1

Prepare a budget for each month in terms of cash received and paid. For example

 

 . . . . . . . . . . . . .January . .February . . March

 

Sales - 100,000

Cash collected  . . . 60,000...40,000

Feb.- 200,000 . . . . . . . . . ..120,000 . . 80,000

Mar. - 240,,000 . . . . . . . . . . . . . . . . . 144,000 . . .etc.

Apr -280,000 - - -

May - 260,000

Purchases- 160,000

Cash paid . . . . . . . (64,000) ..(48,000) ...(48,000)

Nov. - 150,000 . . . .(45,000)

Dec. .150,000 . . . . .(450,000) . .(45,000)

Wages . . . . . . . . . . .(10,000). . .(20,000) . .(24,000)

 

You have to complete one month at a time. The ending cash of one month is the beginning cash of the next month. You have to pay attention to details and stay organized. this is not hard, but you have to work carefully and not rush to get to the end prematurely.