Lien Company Is a Merchandising Company That Sells a Single

question 18

Essay

Lien Company is a merchandising company that sells a single product.The company's inventories,production,and sales in units for the next three months have been forecasted as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { October } & \text { Nowember } & \text { December } \\\hline \text { Beginning imventory } & 10,000 & 10,000 & 10,000 \\\hline \text { Merchandise purchases } & 60,000 & 70,000 & 35,000 \\\hline \text { Sales } & 60,000 & 70,000 & 40,000 \\\hline \text { Ending inventory } & 10,000 & 10,000 & 5,000 \\\hline\end{array}$$
Units are sold for $12 each.One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month.Accounts receivable at September 30 totaled $450,000.Merchandise is purchased for $7 per unit.Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase.Marketing and administrative expenses are expected to total $120,000 each month.One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month.Accounts payable at September 30 totaled $290,000.Cash at September 30 totaled $80,000.A payment of $300,000 for purchase of equipment is scheduled for November,and a dividend of $200,000 is to be paid in December.Ignore depreciation for purposes of preparing the schedules.Required:
a.Prepare a schedule of expected cash collections for each of the months of October,November,and December.b.Prepare a schedule showing expected cash disbursements for merchandise purchases and marketing and administrative expenses for each of the months October,November,and December.c.Prepare a cash budget for each of the months October,November,and December.There is no minimum required ending cash balance.

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Definitions:

Amortization

The process of gradually writing off the initial cost of an asset over its useful life.

Bond Investment

An investment in debt securities issued by corporations or governments to finance their operations.

Other Comprehensive Income

Other Comprehensive Income represents revenues, expenses, gains, and losses not included in net income, and reflects changes in equity during a period except those resulting from investments by and distributions to owners.