(Appendix 10A)Gold Company Has the Following Balances at December 31

question 70

Multiple Choice

(Appendix 10A) Gold Company has the following balances at December 31, 20x0: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December) ; merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only) . Budgeted sales follow: January $ 50,000
February 90,000
March 60,000
April 100,000
Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales
*Cost of goods sold is 40% of sales
*Ending inventory must be 140% of the next month's cost of sales
*Purchases are paid 70% in month of purchase and 30% in the following month
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization
*All costs are paid in the month incurred
*Minimum cash balance requirement is $6,000
The cash disbursements for purchases in March are:

• A)$46,400
• B)$32,480
• C)$38,240
• D)$48,720

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Definitions:

Indirect Method

An approach used in cash flow statements to adjust net income for non-cash transactions and changes in working capital to calculate operating cash flow.

Operating Activities

Activities that constitute the primary or main activities of a business, including the production, sale, and delivery of its products and services.

Direct Method

A way of preparing the cash flow statement in which actual cash receipts and payments are reported, rather than adjusting net income for changes in non-cash accounts.

Net Cash Flow

The amount of cash generated or lost over a period, taking into account cash inflows from operations, investments, and financing.