Question

Cash Budget The controller of Shoe Mart Inc. asks you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: Collection of accounts receivable Dividends Total cash receipts January February March Sales $88,000 $110,000 $150,000 Manufacturing costs 37,000 47,000 54,000 Selling and administrative expenses 26,000 30,000 33,000 Capital expenditures - 36,000 Estimated cash payments for: Manufacturing costs Selling and administrative expenses Capital expenditures Other purposes: The company expects to sell about 12% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $6,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in June, and the annual property taxes are paid in October. Of the remainder of the manufacturing costs, 75% are expected to be paid in the month in which they are incurred and the balance in the following month. All sales and administrative expenses are paid in the month incurred. Note payable (including interest) Income tax Dividends Total cash payments Current assets as of January 1 include cash of $33,000, marketable securities of $48,000, and accounts receivable of $98,000 $77,000 from December sales and $21,000 from November sales). Sales on account in November and December were $70,000 and $77,000, respectively. Current liabilities as of January 1 include a $44,000, 12%, 90- day note payable due March 20 and $6,000 of accounts payable incurred in December for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $2,600 in dividends will be received in January. An estimated income tax payment of $13,000 will be made in February. Shoe Mart's regular quarterly dividend of $6,000 is expected to be declared in February and paid in March. Management desires to maintain a minimum cash balance of $26,000. Cash increase (decrease) Cash balance at beginning of month Cash balance at end of month $ Minimum cash balance Excess (deficiency) Required: 2. The budget indicates that the minimum cash balance will not be maintained in March. This is due primarily to which of the following causes? 1. Prepare a monthly cash budget and supporting schedules for January, February, and March. Enter an increase in the month's cash balance or an excess cash amount as a positive number. Enter a decrease in the month's cash balance or a cash deficiency as a negative number. Assume 360 days per year for interest calculations. I. Capital expenditures II. Note repayment III. Depreciation IV. Income taxes V. Decreased collection of accounts receivable Shoe Mart Inc. Cash Budget Select the correct answer For the Three Months Ending March 31 January February March Estimated cash receipts from: 1 more Check My Work uses remaining, Cash sales

Answer 1

Working: Sales
Particular	January	February	March
Sales	88000	110000	150000
Cash Sales	10560	13200	18000
Credit Sales	77440	96800	132000
Working: Receivable
Collection of account receivable (70%)		54208	67760
Collection of account receivable (30%)			23232
For Nov	21000
For December	53900	23100
Total Receivables	74900	77308	90992
Working: Cash payment for manufacturing cost
Total Manufacturing cost	37000	47000	54000
Less: Depreciation insurance property tax	6000	6000	6000
	31000	41000	48000
Payment of manufacturing cost (75%) in month of incurred	23250	30750	36000
Payment of manufacturing cost (25%) in following month	6000	7750	10250
Cash payment for manufacturing cost	29250	38500	46250
Working: Notes payable
Principal Amount			44000
Interest Amount			1320
Total Notes payable			45320
Cash Budget
Particular	January	February	March
Estimate cash receipts from:
Cash Sales 12%	10560	13200	18000
Total Receivables	74900	77308	90992
Dividend	2600
Total cash receipts	88060	90508	108992
Estimated cash payment for:
Manufacturing cost	29250	38500	46250
Selling and administrative expenses	26000	30000	33000
Capital Expenditure			36000
Other Purpose
Notes payable (including interest)			45320
Income Tax		13000
Dividends			6000
Total Cash payment	55250	81500	166570
Cash Increase and decrease	32810	9008	-57578
Cash balance at beginning of month	33000	65810	74818
Cash balance at end of month	65810	74818	17240
Minimum cash balance	26000	26000	26000
Excess/(Deficit)	39810	48818	-8760

2.

Minimum cash balance not maintained because of

a. Capital Expenditure

b. Notes Repayment