Asked by Marisol Trejo on Jul 06, 2024
Verified
Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the quarter amount to $35. Sales for the first and second quarters are expected to be $110 and $125, respectively, while purchases amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days. What are cash disbursements for the first quarter?
A) $76
B) $88
C) $92
D) $100
E) $110
Average Collection Period
The typical time frame for a company to receive dues from its clients for goods or services offered on credit.
Operating Cycle
The duration of time it takes for a company to buy inventory, sell it, and convert the sale into cash.
Cash Disbursements
Money paid out by a company for expenses, operations, or investments.
- Evaluate financial liquidity by calculating incoming and outgoing cash amounts, reflecting on sales data, administrative policies, and operational periods.
Verified Answer
NK
Nadiah KamalJul 13, 2024
Final Answer :
B
Explanation :
Cash disbursements for the first quarter primarily consist of payments for purchases. Purchases are 80% of the next quarter's forecast sales, which are $125. Therefore, purchases for the first quarter are 0.8 * $125 = $100. Given the accounts payable period is 90 days, the payments made in the first quarter would be for the previous quarter's purchases, not the current quarter's. However, without information on the previous quarter's sales to calculate the exact purchases and payments, we assume the question intends for us to use the current quarter's purchase calculation as a proxy for cash disbursements, leading to an answer of $100, despite the ambiguity in the question's setup.
Learning Objectives
- Evaluate financial liquidity by calculating incoming and outgoing cash amounts, reflecting on sales data, administrative policies, and operational periods.
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