Question

In: Accounting

Transcript Company is preparing a cash budget for June. The company has $145,000 cash at the...

Transcript Company is preparing a cash budget for June. The company has $145,000 cash at the beginning of the month and anticipates having total sales of $1,222,000, consisting of 25% cash sales and 75% credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 150 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. Other cash disbursements are $66,000 per month, 4 percent of the total sales and the cash purchase of a new tractor for $125,000. In addition, a $545,000 note will be due this month for equipment purchased last year. Transcript Company has an agreement with its bank to maintain a cash balance of $125,000.

Required: What is the cash balance and what amount, if any, must the company borrow during June?

Solutions

Expert Solution

Cash Budget for the month of June
Particulars Amount in $
Cash at the beginning of the month                    1,45,000
Add:
Cash Sales(25% of 12,22,000)                    3,05,500
Less:
Cost of Purchases                    8,14,667
Other Cash Disbursements
[66000+ (12,22,000*4%)]                    1,14,880
Cash Purchase of New tractor                    1,25,000
Amount for Equipment Purchased Last year                    5,45,000
Cash At the end as per above budget [a]                -11,49,047
Cash At the end (fixed) [b]                    1,25,000
Cash Shortage [a] - [b]                -12,74,047
Hence the amount to be borrowed at the end shall be 12,74,047
Working Notes
1 Total Sales                  12,22,000
Cash Sales 25%                    3,05,500
Credit Sales 75%                    9,16,500
2 Selling Price is set at 150% of Cost of Sales
Cost of Purchases will be equal to Selling price divided by 150 %
Hence
Cost of Purchases Selling Price/150%
=                  12,22,000
150%
=                    8,14,667
3 Non Cash Items like Credit Card Charges & Credit sales are ignored.

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