Question

On September 30, 2017, the Parker Corporation had a balance of $50,500 in its cash account.

Additional information:

Actual sales:

August                         $180,000
September                     200,000

Budgeted sales:

October                       $195,000
November                     210,000

10% of each month’s sales are cash sales. Of the remaining credit sales, collections are 70% in the month of the sale and 25% in the following month. The remaining 5% is uncollectible.

Inventory costs average 75% of sales (i.e., October sales will require $146,500 of inventory and November sales will require $157,500 of inventory).

Monthly purchases of inventory are 80% of next month's projected inventory needs. Thirty percent of the purchases are paid for in the month of purchase, with the remaining 70% paid in the month following purchase. September’s inventory purchases totaled $117,000.

Selling and administrative expenses are $50,000 per month. Of this amount, $12,000 is depreciation.

The company plans to purchase a new piece of production equipment costing $50,000 at the end of October. It will also sell a parcel of unused land for $10,000 during October.

All obligations, except inventory purchases, are paid in the month incurred.

Parker desires a minimum cash balance of $50,000. Short-term borrowing in increments of $1,000 is available to cover any shortfalls. Borrowings are made at the beginning of the month and repayments are at the end of the month. Interest is 18% per year, and interest payments must be made whenever there is a principal repayment.

Dividends of $10,000 were declared in September and will be paid in October.

REQUIRED:

Prepare a cash budget for October, consisting of cash receipts, disbursements and any borrowing/repayment, such that the minimum cash balance is not less than $50,000. If an amount is 0, you must enter 0. ENTER ALL AMOUNTS IN WHOLE DOLLARS.

	October
Beginning Cash Balance……………….
Collections from Sales …………………
Total Cash Available………………..
Less Disbursements:
Inventory Purchases…………………..
Selling & Administrative Expenses .…
Income Taxes Paid……………………
Equipment (Sales) Purchases………..
Dividends Paid…………………………
Total Cash Disbursements…………
Excess (Inadequacy) of Cash…   ….….
Minimum Cash Balance…………….
Cash Available (Needed)……………….
Financing:
Borrowing………………………………
Repayments…………………………...
Interest…………………………………
Total Financing………………………
Ending Cash Balance…………………..

Answer 1

Months	August	September	October	November
Sales	180,000	200,000	195,000	210,000
Cash sales	18,000	20,000	19,500	21,000
Credit sales	162,000	180,000	175,500	189,000
Collected in month of credit sales (credit sales *70%)	113,400	126,000	122,850	132,300
Collected after one month from credit sales (credit sales * 25%)	40,500	45,000	43,875	47,250
Uncollectable (credit sales *5%)	8,100	9,000	8,775	9,450
Cost of inventory required for sale (sales *75%)	135,000	150,000	146,250	157,500
Monthly purchase of inventory (Next month cost of inventory required for sale *80%)	120,000	117,000	126,000
Payment made in same month (Monthly purchase of inventory * 30%)	36,000	35,100	37,800
Payment made after one month of purchase (Monthly purchase of inventory * 70%)	84,000	81,900	88,200

Sales collection	October
From September sales	45,000
From October sales	122,850
Cash sales	19,500
Collection from sales	187,350
Payment for inventory purchase	October
For October purchase	37,800
For September purchase	81,900
Payment for inventory purchase	119,700
Selling and administrative expenses paid (50000-12000 depreciation )	38,000
Purchase a new piece of production equipment	50,000
Sell a parcel of unused land	10,000
Dividends paid	10,000

Cash budget
	April
Beginning balance	50,500
Collections from sales	187,350
Total cash available to spend	237,850
Less: distributions
Payment to Inventory Purchases	119,700
Selling and administrative expenses paid	38,000
Dividends paid	10,000
Purchase of equipment (net of sale value of land) (50000-10000)	40,000
Total cash distributions	207,700
Cash excess (deficiency) (Total cash available to spend - Total cash distributions)	30,150
Minimum cash balance	50,000
Cash excess needed (cash excess (deficiency) - minimum cash balance)	(19,850)
Financing
Borrowing	20,000
Repayments
Interest
Total financing	20,000
Ending cash balance (Total cash available to spend - Total cash distributions +Total financing )	50,150