Question

Question 2 ch 9

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:

The cash balance on December 1 is $50,600.

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

	October				November				December
Cash sales	$	74,400			$	86,000			$	85,000
Sales on account		515,000				533,000				672,000

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.

Purchases of inventory will total $317,000 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 $190,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $526,000 for December. Of this amount, $58,600 is for depreciation.

A new web server for the Marketing Department costing $78,000 will be purchased for cash during December, and dividends totaling $15,500 will be paid during the month.

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

Required:

1. Prepare a schedule of expected cash collections for December.

2. Prepare a schedule of 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.

Payments to suppliers for inventory                     

Selling and administrative expenses                     

New web server                           

Dividends paid                

Total cash disbursements                          0

Excess (deficiency) of cash available over disbursements              0

Financing:                        

Borrowings                     

Repayments                    

Interest              

Total financing                 0

Ending cash balance                     $0

Answer 1

1.

cash collection for december

December cash sales	85000
Collection on account:
October sales X18%	92700
November sales X 60%	319800
December sales X 20%	134400
Total cash collections	631900

2.

Cash disbursements for merchandise purchases for december

Novemeber purchases payabe (given)	190000
December purchase X 30%	95100
Tota cash disbursement to suppliers	285100

3.

Cash budget for december

Opening Cash balance	50600
Add : total cash collections	631900
Total cash available	682500
Less: cash disbursements
Payment to suppliers	285100
Selling and administrative expenses (526000-58600)	467400
New web server	78000
Dividend paid	15500
Total cash disbursements	846000
Excess (deficiency) of cash available over disbursement	(163,500)
Financing:
Borrowings	183500
Repayments
Interest
Total financing	183500
Ending cash balance	20,000