Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $58,600. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October $ 73,200 $ 485,000 November December $ 78,000 $ 92,000 $ 568,000 $ 663,000 Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. c. Purchases of inventory will total $316,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $162,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation e. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to Increase its cash balance as needed. Required: 1. Calculate the expected cash collections for December 2. Calculate the expected cash disbursements for merchandise purchases for December 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

Ashton Company Sales Collections For the Month ending December 31 December October 87300 November 340800 December 132600 Totals 560700 Purchase Payments For the Month ending December 31 December November 162000 December 94800 Totals 256800 Cash Budget For the Month ending December 31 Opening Balance 58600 Collections 560700 Cash Available 619300 256800 462000 117500 12500 Payments Purchase Payments Selling & Admin Exp. New Web Server Dividends Total Payments Excess Cash over Payments Financing: Borrowings Repayments Interest Total Financing Ending Cash Balance 848800 -229500 249500 249500 20000