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Financial Accounting: The Impact On Decision Makers 9th edition

Need some guidance in answering the following question: Chapter 2, Problem 12MCP

Cash Flow

Franklin Co., a specialty retailer, has a history of paying quarterly dividends of $0.50 per share. Management is trying to determine whether the company will have adequate cash on December 31, 2015, to pay a dividend if one is declared by the board of directors. The following additional information is available:

All sales are on account, and accounts receivable are collected one month after the sale. Sales volume has been increasing 5% each month.

All purchases of merchandise are on account, and accounts payable are paid one month after the purchase. Cost of sales is 40% of the sales price. Inventory levels are maintained at $75,000.

Operating expenses in addition to the mortgage are paid in cash. They amount to $3,000 per month and are paid as they are incurred.

Required:

Determine the cash that Franklin will have available to pay a dividend on December 31, 2015. Round intermediate calculations and final answer to the nearest dollar.

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1) Determine accounts receivable collections. 2) Determine cash paid for purchases. Note that inventory levels are maintained at $75,000, purchases are equal to 40% of sales each month. 3) Determine cash balance. Beginning cash balance + Incoming cash - Outgoing cash = Ending cash balance 4) Determine dividend payment. Outstanding shares multiplied by per share dividend.

Franklin Co Balance Sheet September 30, 2015 Cash Accounts receivable Inventory Note receivable* Building/Land $ 5,000 12,500 75,000 10,000 169,000 $271,500 Accounts payable Mortgage note* Common stock $1 par Retained eanings S 5,000 150,000 50,000 66,500 Total liabilities and Total assets stockholders' equity "Note receivable represents a one-year, 5% interes tbearing note due November 1, 2015. Mortgage note is a 30-year, 7% note due in monthly installments of $1,200