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: points a. The cash balance on December 1 is $56,600. b. Actual sales for October and November and expected sales for December are as follows: eBook Cash sales Sales on account October November December $ 71,200 $ 73,400 $ 86,200 $ 440,000 $ 576,000 $ 639,000 Print 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. References c. Purchases of inventory will total $315,000 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 $181,500, all of which will be paid in December d. Selling and administrative expenses are budgeted at $522,000 for December. Of this amount, $74,100 is for depreciation. e. A new web server for the Marketing Department costing $103,500 will be purchased for cash during December, and dividends totaling $10,000 will be paid during the month. f. 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

Cash Budget for the month of December Particluars Add: Cash Sales Add: Credit Collection (639000*0.2)+(576000*0.6)+(440000*0.18) Req 1 Cash Collection Add: Opening Balance Cash Available Amount 86200 5526000 638800 56600 695400 Less: Payment to suppliers[(315000*0.3)+181500) Less: Selling & Administrative Cost(522000-74100) Less: New Web Server Less: Dividend Paid Req 2 Total Cash Disbursement 276000 447900 103500 10000 837400 Excess of cash available over disbursement Minimum Cash Balance Required Borrowing Required - 142000 20000 162000 Note: Depreciation is a non cash Expense