Dokken & Dietrich’s Donut Company pays for 25% of its inventory purchases in the
month of the purchase and the remainder in the following month. The company’s
inventory purchases totaled $840,000 in October, $920,000 in November, and $600,000
in December. The company also paid for new equipment with a total cost of $380,000 in
November and made a tax payment of $130,000 in December. Salaries and wages were
$300,000 in November and $275,000 in December.
Determine the firm’s cash disbursements for November and December.
To determine the firm's cash disbursements for November and December, we need to consider the expenses incurred during these months and the payment terms for inventory, equipment, taxes, salaries, and wages.
First, let's calculate the cash disbursements for November:
- Inventory purchases in November totaled $920,000. Since the company pays for 25% of inventory purchases in the month of purchase, the cash disbursement for November would be 25% of $920,000, which is $230,000.
- New equipment cost $380,000 in November, so the cash disbursement for equipment is $380,000.
- Salaries and wages for November were $300,000, so the cash disbursement for salaries and wages is $300,000.
- We don't have any information about tax payments or inventory purchases for October, so there are no cash disbursements for these items in November.
Now, let's calculate the cash disbursements for December:
- Inventory purchases in December totaled $600,000. Since the company pays for the remainder of inventory purchases in the following month, the cash disbursement for December would be 75% of $600,000, which is $450,000.
- The tax payment made in December was $130,000, so the cash disbursement for taxes is $130,000.
- Salaries and wages for December were $275,000, so the cash disbursement for salaries and wages is $275,000.
- We don't have any information about equipment purchases in December, so there are no cash disbursements for equipment in December.
Therefore, the firm's cash disbursements for November are $230,000 (inventory) + $380,000 (equipment) + $300,000 (salaries and wages) = $910,000.
The cash disbursements for December are $450,000 (inventory) + $130,000 (taxes) + $275,000 (salaries and wages) = $855,000.
So, the firm's cash disbursements for November and December are $910,000 and $855,000, respectively.