Question

Cash Budget

The Williams Supply Company sells for $40 one product that it purchases for $25. Budgeted sales in total dollars for next year are $1,400,000. The sales information needed for preparing the July budget follows:

Month	Sales Revenue
May	$ 34,000
June	48,000
July	56,000
August	64,000

Account balances at July 1 include these:

Cash	$ 24,000
Merchandise inventory	17,500
Accounts receivable (sales)	25,760
Accounts payable (purchases)	16,250

The company pays for one-half of its purchases in the month of purchase and the remainder in the following month. End-of-month inventory must be 50 percent of the budgeted sales in units for the next month. A 2 percent cash discount on sales is allowed if payment is made during the month of sale. Experience indicates that 50 percent of the billings will be collected during the month of sale, 40 percent in the following month, 8 percent in the second following month, and 2 percent will be uncollectible. Total budgeted selling and administrative expenses (excluding bad debts) for the fiscal year are estimated at $210,000 , of which one-half is fixed expense (inclusive of a $21,000 annual depreciation charge). Fixed expenses are incurred evenly during the year. The other selling and administrative expenses vary with sales. Expenses are paid during the month incurred. (Round your answers to the nearest whole number.)

(a) Prepare a schedule of estimated cash collections for July.

Williams Supply Company Schedule of Cash Collections For the Month of July
Current month's sales	$Answer
Previous month's sales	$Answer
Two months' prior sales	$Answer
Total cash collections	$Answer

(b) Prepare a schedule of estimated July cash payments for purchases. For this, perform your calculation using units rounding up to the nearest whole unit. Then convert to dollars for your answer.

Williams Supply Company Schedule of Cash Payments for Purchases For the Month of July
Current month's purchases	$Answer
Beginning accounts payable	Answer
Total cash payments	$Answer

(c) Prepare schedules of July selling and administrative expenses, separately identifying those requiring cash disbursements.

Williams Supply Company Schedule of Selling and Administrative Expenses and Cash Disbursements For the Month of July
	Total	Cash
Selling and administrative expenses:
Fixed
Cash payment
Variable
Total expenses and cash disbursements

(d) Prepare a cash budget in summary form for July.

Do not use negative signs with any answers below.

Williams Supply Company Cash Budget For the Month of July
Cash receipts
Cash disbursements:
Merchandise
Selling and administrative
Excess receipts (disbursements)

Developing a Master Budget for a Merchandising Organization

Dils Brother Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2017.

Dils Brother Department Store Balance Sheet March 31, 2017
Assets		Liabilities and Stockholders' Equity
Cash	$ 4,000	Accounts payable	$31,000
Accounts receivable	31,000	Dividends payable	15,000
Inventory	36,000	Rent payable	3,000
Prepaid Insurance	3,000	Stockholders' equity	50,000
Fixtures	25,000
Total assets	$99,000	Total liabilities and equity	$99,000

Actual and forecasted sales for selected months in 2017 are as follows:

Month	Sales Revenue
January	$ 70,000
February	60,000
March	50,000
April	60,000
May	70,000
June	80,000
July	100,000
August	90,000

Monthly operating expenses are as follows:

Wages and salaries	$ 27,000
Depreciation	100
Utilities	1,500
Rent	3,000

Cash dividends of $15,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's cost of sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

(a) Prepare a purchases budget for each month of the second quarter ending June 30, 2017.

Dils Brothers Department Store Monthly Purchase Budget Quarter Ending June 30, 2017
	April	May	June	Total
Budgeted purchases	$Answer	$Answer	$Answer	$Answer

(b) Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2017. Do not include borrowings.

Dils Brothers Department Store Schedule of Monthly Cash Receipts Quarter Ending June 30, 2017
	April	May	June	Total
Total cash receipts	$Answer	$Answer	$Answer	$Answer

(c) Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2017. Do not include repayments of borrowings.

Dils Brothers Department Store Schedule of Monthly Cash Disbursements Quarter Ending June 30, 2017
	April	May	June	Total
Total cash disbursements	$Answer	$Answer	$Answer	$Answer

(d) Prepare a cash budget for each month of the second quarter ending June 30, 2017. Include budgeted borrowings and repayments.

Only use negative signs, if needed, for: excess receipts over disbursements, balance before borrowings and cash balances (beginning and ending).

Dils Brothers Department Store Monthly Cash Budget Quarter Ending June 30, 2017
	April	May	June	Total
Cash balance, beginning
Receipts
Disbursements
Excess receipts over disb.
Balance before borrowings
Borrowings
Loan repayments
Cash balance, ending

(e) Prepare an income statement for each month of the second quarter ending June 30, 2017.

Only use negative signs to show net losses for income.

Dils Brothers Department Store Budgeted Monthly Income Statements Quarter Ending June 30, 2017
	April	May	June	Total
Sales
Cost of sales
Gross profit
Operating expenses:
Wages and salaries
Depreciation
Utilities
Rent
Insurance
Interest
Total expenses
Net income

(f) Prepare a budgeted balance sheet as of June 30, 2017.

Dils Brothers Department Store Budgeted Balance Sheet June 30, 2017
Assets		Liabilities and Equity
Cash	$Answer	Merchandise payable	$
Accounts receivable	Answer	Dividend payable
Inventory	Answer	Rent payable
Prepaid insurance	Answer	Loans payable
Fixtures	Answer	Interest payable
Total assets	$Answer	Stockholders' equity
		Total liab. & equity

Answer 1

(a) Prepare a schedule of estimated cash collections for July.

Williams Supply Company Schedule of Cash Collections For the Month of July
Current month's sales ($56,000 x0.5x0.98)	$27,440
Previous month's sales ($48,000x0.4)	$19,200
Two months' prior sales ($34,000 x0.08)	$2,720
Total cash collections	$49,360

(b) Prepare a schedule of estimated July cash payments for purchases. For this, perform your calculation using units rounding up to the nearest whole unit. Then convert to dollars for your answer.

Williams Supply Company Schedule of Cash Payments for Purchases For the Month of July
Current month's purchases ($37,500 x 0.5)	$18,750
Beginning accounts payable	16,250
Total cash payments	$35,000

Cost of Purchases

(c) Prepare schedules of July selling and administrative expenses, separately identifying those requiring cash disbursements.

Williams Supply Company Schedule of Selling and Administrative Expenses and Cash Disbursements For the Month of July
	Total	Cash
Selling and administrative expenses:
Fixed [($210,000 x0.5)/12 months]	$8,750
Cash payment ($8,750 - $1,750)		$7,000
Variable {[($210,000 x0.5) / $1,400,000] x $56,000}	4,200	4,200
Total expenses and cash disbursements	$12,950	$11,200

(d) Prepare a cash budget in summary form for July.

Do not use negative signs with any answers below.

Williams Supply Company Cash Budget For the Month of July
Cash receipts		$49,360
Cash disbursements:
Merchandise	$35,000
Selling and administrative	11,200	(46,200)
Excess receipts (disbursements)		$3,160