The following data pertains to X Company which sells merchandise on credit as follows: 1. Budgeted gross

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Question:

The following data pertains to X Company which sells merchandise on credit as follows:

1. Budgeted gross sales (at list prices) for the first quarter of the coming year 2023 are:

January $260,000 February $243,000 March $293,000

2. Customers are required to pay for their purchases within 30 days, and Al Kamel Company grants a 2% cash discount from list price if payment is made within days.

3. Past experience indicates that customers’ accounts are settled according to the following timetable:

The month of sale 65% Next month 33% Third month 1%

The remaining 1% proves uncollectible.

4. Accounts receivable on January 1 are expected to amount to $130,000. Of this amount, $105,000 will have arisen from December sales, $6,000 from November sales, and the $19,000 from sales made prior to November. No accounts have been written off as uncollectible so far this year, but a number of the accounts now on the books are doubtful, and management sees no reason to change its estimate of the average rate of customer defaults.

5. Of the customer accounts settled in any month, 90% are settled within the discount period and the customers take the discount.

6. The cost of goods sold is budgeted at 60% of gross sales. Sales commissions amount to 3% of gross sales. Other operating expenses will amount to $60,000 a month, including $5,000 a month for depreciation. Sales commissions are paid the month following the month they are earned. Cash payments arising from other operating expenses are paid 70% immediately and the remainder in the following month.

7. Budgeted purchases of merchandise for the three months are $150,000, $175,000, and $160,000, respectively. Purchases are paid for 30 days after the date of purchase.

8. Accounts, sales commissions, and wages payable on January 1 are expected to be as follows:

Accounts payable for merchandise $139,500

Sales commissions payable 9,000

Other accounts and wages payable 16,500

9. The capital budget calls for the purchase of equipment in February for $100,000. Payment is to be made in March, with $60,000 of this amount to be covered by new bank borrowing at that time.

10. A $50,000 cash dividend is to be paid in January.

11. Income taxes are accrued monthly at 40% of pretax income. The only tax payment to be made in this three-month period is a payment of $40,000 in January.

Required:

Prepare a schedule of cash flows for each of the three months, with a line for the cumulative effect on the cash balance.