Question

Problem 8-28 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-7, LO8-8) Westex Products is a wholesale distributor of industrial cleaning products. When the treasurer of Westex Products approached the company's bank late in the current year seeking short term financing, he was told that money was very tight and that any borrowing over the next year would have to be supported by a detailed statement of cash collections and disbursements. The treasurer also was told that it would be very helpful to the bank if borrowers would indicate the quarters in which they would be needing funds, as well as the amounts that would be needed, and the quarters in which repayments could be made Because the treasurer is unsure as to the particular quarters in which bank financing will be needed, he has assembled the following information to assist in preparing a detalled cash budget a Budgeted sales and merchandise purchases for next year, as well as actual sales and purchases for the last quarter of the current year, are Sales Purchase Fourth quite atual $ 200,000 126,000 $ 300,000 186,000 First quarters Second LATEST S Third quartet instad ated instad 1. All sales are on account. The company normally collects 65% of a quarter's sales before the quarter ends and another 33% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the current year's fourth- quarter actual data c. Eighty percent of a quarter's merchandise purchases are paid for within the quarter The remainder is paid for in the following quarter d. Selling and administrative expenses for next year are budgeted at $50,000 per quarter plus 15% of sales of the fixed amount $20.000 each quarter is depreciation e. The con y w pay $10,000 individends each quarter Land purchases of $75 000 will be made in the second quarter and purchases of $48,000 will be made in the third quarter These purchases will be for cash The Cash account contained $10,000 at the end of the current year. The treasurer feels that this represents a minimum balance that must be maintained The company's bank allows borrowing in increments of $1.000 at the beginning of each quarter, up to a total loan balance of $100 000. The interest rate on these loans is 2.5% per quarter and for simplicity we will assume that interest is not compounded The company would as far as it is able repay the loan plus accumulated interest at the end of the year At present the company has no loan outstanding

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Answer 1

Answer with working notes is given below

Please note regarding loan it can be repaid in third quarter but repaid at end of the year as per question

Sales Budget Q1 $300,000 Q2 $400,000 Q3 $500,000 Q4 Total $200,000 $1,400,000 Budgeted Sales Schedule of Cash collected from Customers June | April $195,000 May $99,000 $260,000 $132,000 $325,000 Q1 collections Q2 collections Q3 collections Q4 collections Opening Accounts Receivable ($200,000*33%) Total Cash Collections July August $294,000 $392,000 $165,000 $490,000 $130,000 $130,000 $66,000 $295,000 $1,372,000 $66,000 $261,000 $359,000 $457,000 Q1 $186,000 Q2 $246,000 Q3 $205,000 Q4 $126,000 Total $763,000 Purchase Schedule of Cash payment for purchases Q3 Q4 Q1 $148,800 Q2 $37,200 $196,800 $49,200 $164,000 Q1 Purchase Q2 Purchase Q3 Purchase 04 Purchase Opening Accounts payable ($126,000*20%) Total Cash Payments $41,000 $100,800 Total $186,000 $246,000 $205,000 $100,800 $25,200 $763,000 $25,200 $174,000 $234,000 $213,200 $141,800 nool Variable selling expenses 15% of Sales Fixed selling expenses Total cash payment for selling and administrative expense Q1 $45,000 $30,000 $75,000 Q2 $60,000 $30,000 $90,000 Q3 $75,000 $30,000 $105,000 Q4 $30,000 $30,000 $60,000 Total $210,000 $120,000 $330,000 Westex Products Cash Budget Q1 Opening Balance of Cash Add Cash from customers Total cash available $10,000 $261,000 $271,000 Q2 $12,000 $359,000 $371,000 Q3 $10,000 $457,000 $467,000 Q4 Total $90,800 $10,000 $295,000 $1,372,000 $385,800 $1,382,000 $174,000 $75,000 $10,000 Less: Disbursements Merchandise purchase Selling and administrative expense Dividend Land Total Cash disbursements Excess (Deficiency)of cash available over disbursements Financing Borrowing Repayment Interest Total financing Closing cash balance $234,000 $90,000 $10,000 $75,000 $409,000 -$38,000 $213,200 $105,000 $10,000 $48,000 $376,200 $90,800 $141,800 $763,000 $60,000 $330,000 $10,000 $40,000 $123,000 $211,800 $1,256,000 $174,000 $126,000 $259,000 $12,000 $48,000 $48,000 $3,600 $48,000 $3,600 $129,600 $0 $12,000 $48,000 $10,000 $3,600 -$48,000 $44,400 $129,600 $0 $90,800 Interest on borrowing $48,000*2.5% * 3 quarters Please note loan is repaid at end of the year. It can be repaid in Q3 also to reduce interest expense