Chapter 22, Problem 27QS

To determine

Concept Introduction:

Cash payments for merchandise:

The cash payments for merchandise are the cash payments made to the creditors of the business from whom the merchandise inventory has been purchased. The payment made to the creditors are based on the policies of the company. The company may decide to pay a portion of due in the month of purchase and a portion in the next month.

To compute:

Cash payments for January, February and March

Answer to Problem 27QS

Solution:

Cash payments for January = $ 28,320

Cash payments for February = $ 16,920

Cash payments for March = $ 19,240

Torres Co.
Cash Disbursements for Merchandise (Budgeted)
For January, February and March
	January	February	March
Cash payment for current month's purchases	6,320	7,440	8,080
Cash payment for previous month's purchases	22,000	9,480	11,160
Total cash payments for merchandise	28,320	16,920	19,240

Explanation of Solution

The cash payments for January, February and March are calculated as under -

1. Cash payments for January =

The cash payments for January are calculated as under −

$\begin{array}{l}CashpaymentsforMerchandisefor\text{ January }=\\ CashPaymentsfor\text{ December }Purchases\\ +CashPaymentsforJanuarypurchases\end{array}$

Cash payment for December = $ 22,000

Cash payments for January Purchases −

Given,

• January purchases = $ 15,800
• Percentage of Merchandise purchases to be paid in January = 40 % ( 40 % to be paid in the month of purchase)

$\begin{array}{l}Cashpaymentsfor\text{ January }Purchases=\text{ January }purchasesXPercentageoftotaltobepaid\\ Cashpaymentsfor\text{ January }Purchases=\text{ \$ 15,800 }X\text{ 40\%}\\ Cashpaymentsfor\text{ January }Purchases=\text{ \$ 6},320\end{array}$

Cash payments for January Purchases = $ 6,320

Now, the cash payments for January is calculated as −

$\begin{array}{l}CashpaymentsforMerchandisefor\text{ January }=\\ CashPaymentsfor\text{ December }Purchases\\ +CashPaymentsfor\text{ January }purchases\end{array}$

Given,

• Cash payments for December Purchases = $ 22,000
• Cash payments for January Purchases = $ 6,320

$\begin{array}{l}CashpaymentsforMerchandisefor\text{ January }=\text{\$ 22,000}+\text{ \$ 6,320}\\ CashpaymentsforMerchandisefor\text{ January }=\$\text{ 28},320\end{array}$

1. Cash payments for February =

The cash payments for February are calculated as under −

$\begin{array}{l}CashpaymentsforMerchandiseforFebruary=\\ CashPaymentsfor\text{ January }Purchases\\ +CashPaymentsforFebruarypurchases\end{array}$

The cash payments for January purchases and February purchases are calculated as under −

Cash payments for January Purchases −

Given,

• August purchases = $ 15,800
• Percentage of Merchandise purchases to be paid in February = 60 % (60 % to be paid in the following month)

$\begin{array}{l}Cashpaymentsfor\text{ January }Purchases=\text{ January }purchasesXPercentageoftotaltobepaid\\ Cashpaymentsfor\text{ January }Purchases=\text{ \$ 15,800 }X\text{ 60\%}\\ Cashpaymentsfor\text{ January }Purchases=\text{ \$ 9,480}\end{array}$Cash payments for January Purchases = $ 9,480.

Cash payments for February Purchases −

Given,

• February purchases = $ 18,600
• Percentage of Merchandise purchases to be paid in February = 60 % ( 60 % to be paid in the month of purchase)

$\begin{array}{l}CashpaymentsforFebruaryPurchases=FebruarypurchasesXPercentageoftotaltobepaid\\ CashpaymentsforFebruaryPurchases=\text{ \$ 18,600 }X\text{ 40\%}\\ CashpaymentsforFebruaryPurchases=\text{ \$ 7,440}\end{array}$

Cash payments for February Purchases = $ 7,440.

Now, the cash payments for February is calculated as −

$\begin{array}{l}CashpaymentsforMerchandiseforFebruary=\\ CashPaymentsfor\text{ January }Purchases\\ +CashPaymentsforFebruarypurchases\end{array}$

Given,

• Cash payments for January Purchases = $ 9,480
• Cash payments for February Purchases = $ 7,440

$\begin{array}{l}CashpaymentsforMerchandisefor\text{ February }=\text{\$ 9,480}+\text{ \$ 7,440}\\ CashpaymentsforMerchandisefor\text{ February }=\$\text{ 16,920}\end{array}$

1. Cash payments for March =

The cash payments for March are calculated as under −

$\begin{array}{l}CashpaymentsforMerchandiseforMarch=\\ CashPaymentsforFebruaryPurchases\\ +CashPaymentsforMarchpurchases\end{array}$

The cash payments for February purchases and March purchases are calculated as under −

Cash payments for February Purchases −

Given,

• August purchases = $ 18,600
• Percentage of Merchandise purchases to be paid in March = 60 % ( 60 % to be paid in the following month)

$\begin{array}{l}CashpaymentsforFebruaryPurchases=FebruarypurchasesXPercentageoftotaltobepaid\\ CashpaymentsforFebruaryPurchases=\text{ \$ 18,600 }X\text{ 60\%}\\ CashpaymentsforFebruaryPurchases=\text{ \$ 11,16}0\end{array}$

Cash payments for February Purchases = $ 11,160.

Cash payments for March Purchases −

Given,

• March purchases = $ 20,200
• Percentage of Merchandise purchases to be paid in March = 40 % ( 40 % to be paid in the month of purchase)

$\begin{array}{l}CashpaymentsforMarchPurchases=MarchpurchasesXPercentageoftotaltobepaid\\ CashpaymentsforMarchPurchases=\text{ \$ 20,200 }X\text{ 40\%}\\ CashpaymentsforMarchPurchases=\text{ \$ 8,080}\end{array}$

Cash payments for March Purchases = $ 8,080.

Now, the cash payments for March is calculated as −

$\begin{array}{l}CashpaymentsforMerchandisefor\text{ March }=\\ CashPaymentsfor\text{ February }Purchases\\ +CashPaymentsfor\text{ March }purchases\end{array}$

Given,

• Cash payments for August Purchases = $ 11,160
• Cash payments for September Purchases = $ 8,080

$\begin{array}{l}CashpaymentsforMerchandiseforMarch=\text{\$ 11,160}+\text{ \$ 8,080}\\ CashpaymentsforMerchandiseforMarch=\$\text{ 19,240}\end{array}$

Conclusion

Thus, the schedule of cash payments for the Month of January, February and March has been prepared.