Question

*Problem 5-35

Bonita Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

Month Sales Month Sales

January $904,300 July $1,503,900

February $1,002,600 August $1,503,900

March $904,300 September $1,610,000

April $1,158,500 October $1,610,000

May $1,254,900 November $1,503,900

June $1,405,100 December $1,700,100

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

? All sales are made on credit.

? Bonita’s excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale.

? Cost of goods sold, Bonita’s largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased.

? All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase.

? Hourly wages and fringe benefits, estimated at 30% of the current month’s sales, are paid in the month incurred.

? General and administrative expenses are projected to be $1,560,800 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits $ 325,500

Advertising 378,900

Property taxes 137,400

Insurance 193,900

Utilities 178,300

Depreciation 346,800

Total $ 1,560,800

? Operating income for the first quarter of the coming year is projected to be $324,300. Bonita is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.

? Bonita maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $59,200.

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Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Cash Receipts Budget

April May June Total Cash Receipts

February sales $

  

$

  

$

  

$

  

March sales   

  

  

  

April sales   

  

  

  

May sales   

  

  

  

Totals $

  

$

  

$

  

$

  

Accounts Receivable balance at the end of second quarter of 2015 $

  

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Prepare the purchases budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Purchases Budget

April May June Total Purchases

April COGS $

  

$

  

$

  

$

  

May COGS   

  

  

  

June COGS   

  

  

  

July COGS   

  

  

  

Totals $

  

$

  

$

  

$

  

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Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Cash Payments Budget

April May June

March purchases $

  

$

  

$

  

April purchases   

  

  

May purchases   

  

  

June purchases   

  

  

$

  

$

  

$

  

Accounts Payable balance at the end of second quarter of 2015 $

  

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Prepare the cash budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Cash Budget

April May June Quarter

Beginning Cash balance $

  

$

  

$

  

$

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Financing:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Ending Cash Balance $

  

$

  

$

  

$

**Need help preparing the cash budget for the next quarter. I'm not sure how to calculate the numbers.

Answer 1

Cash receipts budget
	April	May	June	total
Budgeted sales	1158500	1254900	1405100	3818500
Collections:
February sales	401040			401040
March Sales	542580	361720		904300
April Sales		695100	463400	1158500
May Sales			752940	752940
Total cash Receipts	943620	1056820	1216340	3216780
Receivables	1520220	1718300	1907060	1907060
Purchase budget
	April	May	June	Total
Cost of goods sold (40% of sales)	463400	501960	562040
Purchases
April COGS	139020			139020
May COGS	351372	150588		501960
June COGS		393428	168612	562040
July COGS			421092	421092
Budgeted Purchases	490392	544016	589704	1624112
Cash payments budget
	April	May	June	Total
For March purchases *	108224			108224
For April purchases	367794	122598		490392
For May purchases		408012	136004	544016
For June purchases			442278	442278
Total Payments	476018	530610	578282	1584910
Accounts Payable	122598	136004	147426	147426
* March purchases will be 70% of 463,400 + 30% of (40% of 904,300) = 432,896
Payment for March purchases in April = 25% of 432,896 = 108,224
Cash Budget
	April	May	June	Total
Beginning Cash balance	59200	307365	743859	59200
Cash receipts from sales	943620	1056820	1216340	3216780
Total cash available for payments	1002820	1364185	1960199	3275980
Cash Payments
For purchases	476018	530610	578282	1584910
For Salaries and Fringe benefits	27125	27125	27125	81375
For Advertising	31575	31575	31575	94725
For Property taxes			34350	34350
For insurance	16158	16158	16158	48475
For Utilities	14858	14858	14858	44575
For Income taxes	129720			129720
Total Cash payaments	695455	620327	702349	2018130
Excess of cash available over payments	307365	743859	1257850	1257850
Minimum cash balance	50000	50000	50000	50000
Cash Surplus / (Deficit)	257365	693859	1207850	1207850
Financing:
Borrowings/(Repayments)	0	0	0	0
Interest	0	0	0	0
Total Financing	0	0	0	0
Ending Cash Balance	307365	743859	1257850	1257850