Question

Prepare the Cash Budget assuming:

1. January 1, 2021 cash balance is expected to be $60,000

2. Sales are expected to be collected:

a. 60% in the quarter of the sale.

b. 25% one quarter after the sale.

c. 15% two quarter after the sale.

3. Accounts Receivable of $68,000 at December 31, 2020 are expected to be collected in full, $40,000 in the first quarter and the remaining in the second quarter of 2021.

4. Direct material is expected to be paid:

a. 35% in the quarter of purchase.

b. 35% one quarter after the purchase. c. 30% two quarter after the purchase.

5. Short term investments are expected to be sold for $5,000 in the second quarter and $3,500 in the third quarter.

6. Long term investment is expected to be sold for $25,000 in the third quarter. 7. Direct labor is 100% paid in the quarter incurred.

8. Manufacturing overhead, all items except depreciation are paid in the quarter incurred. 9. Selling and administrative expenses, all items except depreciation are paid in the quarter incurred.

10. Management plans to purchase a minivan in the fourth quarter for $35,000, and a delivery truck in the third quarter for $10,600.

11. McGregor makes equal quarterly payments of its estimated annual income taxes. 12. Accounts payable of $25,500 at December 31, 2020 are expected to be paid in full in the second quarter.

13. McGregor wishes to maintain a balance of at least $30,000 in cash.

14. Assume interest of $1,000 in the repayment

15. Common Stock are expected to be issued in the fourth quarter for an amount of 20,000.

16. Loans are repaid in the earlier quarter in which there is sufficient cash (that is when the cash on hand exceeds the $30,000 minimum required balance).

Prepare the Budgeted Balance Sheet with the information above and the following information:

1. Pertinent data at December 31, 2020 are as follows:

a. Building and equipment, $250,000

b. Accumulated depreciation $120,000

c. Common stocks $201,000

d. Retained earnings $230,997.48

2. The accounts that should be in the statements are:

a. Cash

b. Account receivable

C. Finished goods inventory

d. Raw material inventory

e. Accounts payable

f. The accounts mentioned in part 1 of this section.

Answer 1

1.

Cash budget:

Particulars	Quarter 1 ($)	Quarter 2 ($)	Quarter 3 ($)	Quarter 4 ($)
Beginning cash balance	60,000	100,000	107,500	125,400
Add: Receipts:
Collection from receivables	40,000	28,000
Sale of short-term investment	5,000	3,500
Sale of long-term investment	25,000
Issue of common	20,000
Total Available cash balance	100,000	133,000	136,000	145,400
Less: Payments:
Purchase of Minivan	35,000
Purchase of Delivery Truck	10,600
Payment of accounts payable	25,500
Total payments	-	25,500	10,600	35,000
Ending Cash balance	1,00,000	107,500	125,400	110,400

 

In the given question information in relation to sale; direct material; purchases; manufacturing expense; selling and administrative expense is not available and hence the budget is prepared with the information available.

 

2.

Preparation of budgeted balance sheet: (Extract)

Liabilities	Amount ($)	Amount ($)	Assets	Amount ($)	Amount ($)
Common stock Add: fresh issue	201,000 20,000	221,000	Building and equipment Less: Accumulated depreciation	250,000 120,000	130,000
Retained earnings	230,997.48	Accounts receivable
Raw material inventory
Finished goods inventory
Accounts payable	Cash	110,400

 

Since the balance of accounts receivable; raw material inventory; finished goods inventory; accounts payable; are not available and hence the balance sheet is prepared with present information and computed balance sheet.

1. In the given question information in relation to sale; direct material; purchases; manufacturing expense; selling and administrative expense is not available and hence the budget is prepared with the information available.

2. Since the balance of accounts receivable; raw material inventory; finished goods inventory; accounts payable; are not available and hence the balance sheet is prepared with present information and computed balance sheet.