Question

Exercise 14-13 Preparing a cash budget LO 14-5 The accountant for Rooney’s Dress Shop prepared the following cash budget. Rooney’s desires to maintain a cash cushion of $17,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 3 percent per month. Required Complete the cash budget by filling in the missing amounts. Determine the amount of net cash flows from operating activities Rooney’s will report on the third quarter pro forma statement of cash flows. Determine the amount of net cash flows from financing activities Rooney’s will report on the third quarter pro forma statement of cash flows.

Cash Budget July August September Section 1: Cash receipts Beginning cash balance $49,000 $17,000 $17,000 Add cash receipts 193,000 213,000 253,600 Total cash available 242,000 230,000 270,600 Section 2: Cash payments For inventory purchases 172,026 146,730 180,652 For S&A expenses 61,000 67,060 67,932 For interest expense 0 Total budgeted disbursements 233,026 Section 3: Financing activities Surplus (shortage) 8,974 Borrowing (repayments) 8,026 Ending cash balance $17,000 $17,000 $17,000

Determine the amount of net cash flows from both operating and financing activities Rooney's will report on the third quarter pro forma statement of cash flows. (Round intermediate calculations and final answers to the nearest whole dollar amount.)

	b. Net cash (operating activities) c. Net cash (financing activities)

Answer 1

Cash Budget	July	August	September
Section 1: Cash receipts
Beginning cash balance	$49,000	$17,000	$17,000
Add cash receipts	193,000	213,000	253,600
Total cash available	242,000	230,000	270,600
Section 2: Cash payments
For inventory purchases	172,026	146,730	180,652
For S&A expenses	61,000	67,060	67,932
For interest expense	0	240.78	271.70
Total budgeted disbursements	233,026	214,031	248,856
Section 3: Financing activities
Surplus (shortage)	8,974	15,969	21,744
Borrowing (repayments)	8,026	1,031	-4,744
Ending cash balance	$17,000	$17,000	$17,000

Working notes for the above answer is as under

1

Interest calculation for the month of august

=8026 x 3% per month

=8026 x 3%

=240.78%

Interest calculation for the month of September

=(8026 +1031)x 3% per month

=9057 x 3%

=271.70%

2

Repayment in the month of September

=21744-17000

=$4744

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b

Cash flow from operating activities is

=cash receipts from customers - the total cash payments for inventory, S&A expense, and interest

=(193000+213000+253000) - (233026+214031+248856)

=659600- 695,912

=-36,312

net cash outflow from operating activity is = (36,312)

_____________________________________________________

Answer:c

Cash flow from financing activities

=the amount borrowed - repayments

=8026-1031-4744

=4312

Cash flow from financing activities =4312