Question

Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

• Sales are budgeted at $250,000 for November, $270,000 for December, and $235,000 for January.
• Cash collections are expected to be $246,000 for November, $273,000 for December, and $244,000 for January.
• The cost of goods sold is 65% of sales.
• Cash disbursements for food product purchases are expected to be $197,000 for November, $202,000 for December, and $188,000 for January.
• Other monthly expenses to be paid in cash are $52,000.
• Monthly depreciation is $8,000.
• The company declares and pays a monthly cash dividend of $2,000.
• The balance sheet at October 31^st shows a cash balance of $20,000 and a retained earnings balance of $156,000.
• Corporation policy requires that the company maintain a minimum cash balance of $20,000 at the end of each month.
• Ignore taxes.

A. The excess (deficiency) for November would be:

B. In order to meet the minimum cash balance requirement at the end of November, the Company will need to borrow:

C. The net income (loss) for the month of November would be:

D. Retained earnings at the end of November would be:

Answer 1

A. The excess (dificiency) for november would be $23,000.

B. In order to meet the minimum cash balance requirement at the end of November, the company will not need to borrow money during this month. The wants to maintain a minimum cash balance of $20,000; therefore it will not need to borrow money in this month where its excess cash available over disbursements is greater than $20,000.

C. The net income for the month of November would be $87,500.

D. Retained earnings at the end of November would be $241,500.

A.

Cash Budget

	November
Beginning cash balance	$20,000
Add: Cash receipts
Collections form customer	$246,000
Total cash available	266,000
Less: Cash disbursements
Direct materials	197,000
Manufacturing overhead	44,000
Dividends	2,000
Total cash disbursements	$243,000
Excess (deficiency) of cash available over disbursements	$23,000

C.

Income Statement

Sales	$250,000
Cost of goods sold	162,500
Gross margin	87,500
Selling and administrative expenses	0
Net operating income	87,500
Interest expense	0
Net income	$87,5000

D.

Retained Earnings Statement

Balance, November 1	$156,000
Add: Net income	87,500
	243,500
Less: Cash dividends	2,000
Balance, November 31	$241,500