Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

It is time to make the annual cash bonus payments to Thomas Companys top managers. However, this year cash is tight. Thomas has just completed

It is time to make the annual cash bonus payments to Thomas Companys top managers. However, this year cash is tight. Thomas has just completed an analysis of its expected cash collections in November, and there is some concern about whether there will be enough cash left over to make the cash bonus payments on schedule. Thomas Companys CEO has asked the companys accounting staff to create a budget of cash payments to suppliers in the month of November. With this information on how much cash must be paid to suppliers, Thomass top managers can determine whether there will be enough cash left over for their bonuses.

It is November 1 of Year 1. Sales for Thomas Company for November and December of Year 1 and January of Year 2 are forecasted to be as follows: November, 300,000; December 700,000; January, 200,000. On average, cost of goods sold is 60% of sales. During this period, Thomas Company expects inventory levels to remain constant. This means that inventory purchases are expected to equal the amount of cost of goods sold.

90% of purchases are on credit. Of the credit purchases, 5% are paid during the month of the purchase, 35% in the month following the purchase, and 60% in the second month following the purchase. Sales for September and October of Year 1 were 100,000 and 150,000, respectively.

What is the forecasted amount of total cash payments for purchases in November of Year 1? (Note: This is the sum of immediate payments from cash purchases, same-month cash payments of credit purchases, and cash payments for credit purchases made in prior months.)

a. $86,850

b. $76,500

c. $68,850

d. $144,750

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Responsibility

Authors: Tom Cannon

2nd Edition

0273738739, 9780273738732

More Books

Students also viewed these Accounting questions

Question

Why was the phi phenomenon so important to Wertheimer?

Answered: 1 week ago