Question

Question 4 17 pts On September 30, the Parker Corporation had a balance of $50,500 in its cash account. Additional information: o Actual sales: August September $180,000 200,000 o Budgeted sales: October November $195,000 210,000 • 10% of each month's sales are cash sales. Of the remaining credit sales, collections are 70% in the month of the sale and 25% in the following month. The remaining 5% is uncollectible. Inventory costs average 75% of sales (i.e., October sales will require $146,500 of inventory and November sales will require $157,500 of inventory). Monthly purchases of inventory are budgeted at 100% of next month's projected inventory needs. Thirty percent of the purchases are paid for in the month of purchase, with the remaining 70% paid in the month following purchase. Inventory purchases in September totaled $117,000. o Selling and administrative expenses are $50,000 per month. Of this amount, $12,000 is depreciation. o The company plans to purchase a new piece of production equipment costing $40,000 at the end of October. o All obligations, except inventory purchases, are paid in the month incurred. o Parker desires a minimum cash balance of $50,000. Short-term borrowing in increments of $1,000 is available to cover any shortfalls. Borrowings are made at the beginning of the month and repayments are at the end of the month. Interest is 18% per year, and interest payments must be made whenever there is a principal repayment. o Dividends of $10,000 were declared in September and will be paid in October. REQUIRED: Prepare a cash budget for October, consisting of cash receipts, disbursements and any borrowing/repayment, such that the minimum cash balance is not less than $50,000. If an amount is 0, you must enter 0; do not leave the cell blank. ENTER ALL AMOUNTS IN WHOLE DOLLARS.

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Answer 1

Calculation Oct 50,500 187,350 237,850 129,150 38,000 =50,000-12,000 Parker Corporation Cash budget Beginning Cash balance Add: Collections from sales Total cash available Less cash disbursements Inventory purchases Selling and administrative expenses Income taxes paid Equipment (Sales) Purchases Dividends paid Total Cash disbursements Excess (deficiency) of cash Minimum Cash balance Cash available (needed) Financing Borrowings Repayments Interest Total financing Ending Cash balance 40,000 10,000 217,150 20,700 50,000 (29,300) 30,000 30,000 50,700 Oct Oct 195,000 WORKINGS Schedule of budgeted cash collections Reqa Sales Cash collections Cash sales Credit sales collections Accounts Receivable Oct sales Total cash collections 19,500 =195,000*10% 45,000 122,850 187,350 =200,000*90%*25% =195,000*90%*70% Schedule of budgeted cash disbursements-Purchases Reqb Accounts Payables Oct Purchases Total disbursements for purchases Oct 81,900 47,250 129,150 Oct =117,000*70% =157,500*30%

Since cash needed is $29,300 and we can only borrow in increments of $1,000,

have rounded off borrowings to $30,000