Question

Monthly Cash Budget
Grove, Inc. is a wholesaler for its only product, deluxe wireless electric drills, which sell for $88 each and cost Grove $53 each. On December 1, 2016, Grove's management requested a cash budget for December. The following selected account balances at November 30, 2016, were gathered by the accounting department:

Cash				$135,000
Marketable securities (at cost)				210,000
Accounts receivable (all trade)				1,710,000
Inventories (15,000 units)				795,000
Operating expenses payable				140,400
Accounts payable (all merchandise)				583,200
Note payable (due 12/31/2016)				393,000

Actual sales for the months of October and November were 20,000 and 30,000 units, respectively. Projected unit sales for December and January are 50,000 and 40,000, respectively. Experience indicates that 50% of sales should be collected in the month of sale, 30% in the month following sale, and the balance in the second month following sale. Uncollectible accounts, returns, and allowances are negligible.

Planned purchases should provide ending inventories equal to 30% of next month's unit sales volume. Approximately 70% of the purchases are paid for in the month of purchase and the balance in the following month.

Monthly operating expenses are budgeted at $7.10 per unit sold plus a fixed amount of $189,000 including depreciation of $81,000. Except for depreciation, 60% of operating expenses are paid in the month incurred and the balance in the following month. Interest expense is included in operating expenses.

Special anticipated year-end transactions include the following:
1. Declaration of a $22,500 cash dividend to be paid 2 weeks after the December 20 date of record.
2. Sale of one-half of the marketable securities held on November 30 a gain of $21,000 is anticipated.
3. Pay off the note payable due December 31, 2016.
4. Trade-in of an old computer originally costing $675,000 and now having accumulated depreciation of $540,000 at a gain of $157,500 on a new computer costing $1,380,000. Sufficient cash will be paid at the time of trade-in so that only 50% of the total price will have to be financed.
5. Grove's treasurer has a policy of maintaining a minimum month-end cash balance of $135,000 but wants to raise this to $225,000 at December 31. She has a standing arrangement with the bank to borrow any amount up to a limit of $450,000.

Prepare a cash budget for Grove, Inc., for December 2016.

Collections in December from customers:

From October sales	Answer
From November sales	Answer
From December sales	Answer
Total collections	Answer

Payments on account for merchandise purchases:

	November	December
Unit Sales	Answer	Answer
Ending inventories	Answer	Answer
Total units to be available	Answer	Answer
Beginning inventories	Answer	Answer
Units to be purchased	Answer	Answer
Total dollar purchases	Answer	Answer
Portion paid in December	Answer	Answer

Payment of operating expenses:

	November	December
Total variable operating expenses	Answer	Answer
Fixed operating expenses	Answer	Answer
Total operating expenses	Answer	Answer
Monthly depreciation	Answer	Answer
Operating expenses requiring payment	Answer	Answer
Amounts to be paid in December	Answer	Answer

Cash required at time of computer purchase:

Cost of new computer		Answer
Book value of old computer	Answer
Gain on trade-in	Answer
Total trade-in allowance		Answer
Balance owing at trade-in		Answer
Portion to be financed		Answer
Cash payment required		Answer

Grove, Inc. Cash Budget For the Month Ended December 31, 2016
Beginning cash balance	Answer
Cash receipts:
Collections from customers (calculated above)	Answer
AnswerPayment on dividends declaredPayoff of note payableSale on securities	Answer
Short-term borrowing	Answer
Cash available	Answer
Cash disbursements:
Payments on accounts payable (calculated above)	Answer
Payments of operating expenses payable (calculated above)	Answer
Down payment on computer (calculated above)	Answer
AnswerPayment on dividends declaredPayoff of note payableSale on securities	Answer
Total cash disbursements	Answer
Ending cash balance	Answer

Answer 1

Collections in December from customers:

From October sales (20000 x $88 x 20%)	352000
From November sales (30000 x $88 x 30%)	792000
From December sales (50000 x $88 x 50%)	2200000
Total collections	3344000

Payments on account for merchandise purchases:

	November	December
Unit sales	30000	50000
Ending inventories (30% x 50000);(30% x 40000)	15000	12000
Total units to be available	45000	62000
Beginning inventories	9000	15000
Units to be purchased	36000	47000
Total dollar purchases (36000 x $53);(47000 x $53)	1908000	2491000
Portion paid in December (30% x $1908000);(70% x $2491000)	572400	1743700

Payment of operating expenses:

	November	December
Total variable operating expenses (30000 x $7.10);(50000 x $7.10)	213000	355000
Fixed operating expenses	189000	189000
Total operating expenses	402000	544000
Monthly depreciation	81000	81000
Operating expenses requiring payment	321000	463000
Amounts to be paid in December (40% x $321000);(60% x $463000)	128400	324100

Cash required at time of computer purchase:

Cost of new computer		1380000
Book value of old computer ($675000 - $540000)	135000
Gain on trade-in	157500
Total trade-in allowance		292500
Balance owing at trade-in		1087500
Portion to be financed (50% x $1380000)		690000
Cash payment required		397500

Grove, Inc.
Cash Budget
For the Month Ended December 31, 2016
Beginning cash balance	135000
Cash receipts:
Collections from customers (calculated above)	3344000
Sale on securities [($210000 x 1/2) + $21000]	126000
Short-term borrowing	179100
Cash available	3784100
Cash disbursements:
Payments on accounts payable (calculated above)	2316100
Payments of operating expenses payable (calculated above)	452500
Down payment on computer (calculated above)	397500
Payoff of note payable	393000
Total cash disbursements	3559100
Ending cash balance	225000