Question

PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 52% in the month after the sale is made and 47% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:

In the month during which the merchandise is purchased or the cost is incurred	75	%
In the subsequent month	25	%

PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:

	September				October				November				December
Sales	$	42,400			$	54,200			$	67,800			$	59,300
Cost of goods sold:
Beginning inventory	$	5,980			$	14,830			$	20,480			$	22,230
Purchases		38,500				43,900				48,600				33,100
Cost of goods available for sale	$	44,480			$	58,730			$	69,080			$	55,330
Less: Ending inventory		(14,830	)			(20,480	)			(22,230	)			(20,010	)
Cost of goods sold	$	29,650			$	38,250			$	46,850			$	35,320
Gross profit	$	12,750			$	15,950			$	20,950			$	23,980
Operating expenses		10,400				12,400				14,400				16,500
Operating income	$	2,350			$	3,550			$	6,550			$	7,480

Cash on hand August 31 is estimated to be $39,910. Collections of August 31 accounts receivable were estimated to be $17,230 in September and $15,260 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $24,230.

Required:
a-1. Prepare a cash budget for October and November. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

b-1. Assume now that PrimeTime Sportswear is a mature firm, and that the September–November data represent a seasonal peak in business. Prepare a cash budget for December, January, and February, assuming that the income statements for January and February are the same as December's. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

Answer 1

a-1. Prepare a cash budget for October and November as follows:

	September	October	November
Beginning cash	$39,910	($3,240)	($20,382)
Cash receipts:
August 31 accounts receivable	$17,230	$15,260	-
September sales		$22,048	$19,928
October sales			$28,184
November sales	-	-	-
Total cash receipts	$57,140	$34,068	$27,730
Cas Disbursement
September purchase	($28,350)	($9,625)
October purchase		($32,925)	($10,975)
November purchase			($36,450)
August 31 accounts payable & accrued expense	($24,230)
September operating expense	($7,800)	($2,600)
October operating expense		($9,300)	($3,100)
November operating expense			($10,800)
Total cash disbursement	($60,380)	($54,450)	($61,325)
Ending cash	($3,240)	($20,382)	($33,595)