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Problem 8-21 Schedules of Expected Cash Collections and Disbursements [LO8-2, LO8-4, LO8-8] You have been asked...

Problem 8-21 Schedules of Expected Cash Collections and Disbursements [LO8-2, LO8-4, LO8-8]

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

  1. The cash balance on December 1 is $45,400.

  2. Actual sales for October and November and expected sales for December are as follows:

October November December
Cash sales $ 67,800 $ 70,400 $ 93,000
Sales on account $ 465,000 $ 562,000 $ 614,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

  1. Purchases of inventory will total $356,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $164,000, all of which will be paid in December.

  2. Selling and administrative expenses are budgeted at $431,000 for December. Of this amount, $54,200 is for depreciation.

  3. A new web server for the Marketing Department costing $120,500 will be purchased for cash during December, and dividends totaling $13,500 will be paid during the month.

  4. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

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