Question

E5-14 Prepare a cash budget for two months.
Rigley Company expects to have a cash balance of $46,000 on January 1, 2017.
These are the relevant monthly budget data for the first two months of 2017.
1.	Collection from customers: January $71,000 and February $146,000.
2.	Payments to suppliers: January $40,000, February $75,000.
3.	Wages: January $30,000 and February $40,000. Wages are paid in the month
	they are incurred.
4.	Administrative expenses: January $21,000 and February $24,000. These costs
	include depreciation of $1,000 per month. All other costs are paid as incurred.
5.	Selling expenses: January $15,000 and February $20,000. These costs are exclusive
	of depreciation. They are paid as incurred.
6.	Sales of short-term investments in January are expected to realize $12,000 in
	cash. Rigley has a line of credit at a local bank that enables it to borrow up
	to $25,000. The company want to maintain a minimum monthly cash balance
	of $20,000.
Instructions
Prepare a cash budget for January and February.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
RIGLEY COMPANY
Cash Budget
For the Two Months Ending February 28, 2017
							January		February
Beginning cash balance							Value		Value
Add:	Cash receipts
	Collections from customers						Value		Value
	Sale of short-term investments						Value		Value
	Total receipts						?		?
Total available cash							?		?
Less: Cash disbursements
	Payments to suppliers						Value		Value
	Wages						Value		Value
	Administrative expenses						Value		Value
	Selling expenses						Value		Value
	Total disbursements						?		?
Excess (deficiency) of available cash over disbursements							?		?
Financing
Add: Borrowings							Value		Value
Less: Repayments							Value		Value
Ending cash balance							?		?
After you have completed E7-14, consider the following additional question
1.	Assume that collection from customers and payment to suppliers in January changed to $80,000
	and $55,000 respectively. Show the impact of these changes on the Cash Budget.
SOLVE FOR MISSING VALUES AND ANSWER QUESTION 1

Answer 1

Solution

Rigley Company

Cash budget for two months January and February:

Rigley Company
Cash Budget
for the two months - January and February
	January	February
Beginning Cash balance	$46,000	$24,000
Add: Cash receipts
collections from customers	$71,000	$146,000
Sale of short term investments	$12,000	0
Total receipts	$83,000	$146,000
Available cash	$129,000	$174,000
Less: Disbursements:
Payment to suppliers	$40,000	$75,000
Wages	$30,000	40,000
Administrative expenses	$20,000	$23,000
selling and administrative expenses	$15,000	$20,000
Total disbursements	$105,000	$158,000
Excess/(deficiency) of available cash over disbursements	$24,000	$16,000
minimum balance	$20,000	$20,000
Financing -
Add: Borrowings		$4,000
Less: Repayments
Ending cash balance	$24,000	$20,000

Note:

1. Depreciation is a non-cash expense hence the same is deducted from administrative expenses.
2. The excess of available cash over disbursements in February is $16,000 however the minimum required cash balance is $20,000. Hence the company needs to borrow $4,000 from the bank to maintain the minimum cash balance.

Impact of changes in collections from customers and payment to suppliers in the month of January on Cash budget:

Rigley Company
Cash Budget
for the two months - January and February
	January	February
Beginning Cash balance	$46,000	$20,000
Add: Cash receipts
collections from customers	$80,000	$146,000
Sale of short term investments	$12,000	0
Total receipts	$92,000	$146,000
Available cash	$138,000	$166,000
Less: Disbursements:
Payment to suppliers	$55,000	$75,000
Wages	$30,000	40,000
Administrative expenses	$20,000	$23,000
selling and administrative expenses	$15,000	$20,000
Total disbursements	$120,000	$158,000
Excess/(deficiency) of available cash over disbursements	$18,000	$8,000
minimum balance	$20,000	$20,000
Financing -
Add: Borrowings	$2,000	$12,000
Less: Repayments
Ending cash balance	$20,000	$20,000

Note:

1. Depreciation is a non-cash expense hence the same is deducted from administrative expenses.
2. The excess of available cash over disbursements in January is $18,000 and in February is $8,000. The minimum required cash balance is $20,000 per month hence the company borrows $2,000 and $12,000 from the bank to maintain the minimum balance of $20,000 in the months of January and February, respectively.