Question

Problem 8-21 Schedules of Expected Cash Collections and Disbursements (L08-2, LO8-4, LO8-8) 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 $41,000. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 68,400 $ 87.400 $ 95,800 $ 415,000 $ 614,000 $ 692,000 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 $376,000 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 $174,500, all of which will be paid in December d. Selling and administrative expenses are budgeted at $452,000 for December of this amount, $63,500 is for depreciation e. A new web server for the Marketing Department costing $86,500 will be purchased for cash during December, and dividends totaling $10,500 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. Complete this question by entering your answers in the tabs below. Reg 1 and 2 Reg 3 1. Calculate the expected cash collections for December. 2. Calculate the expected cash disbursements for merchandise purchases for December

Answer 1

1. Prepare a shedule of expected cash collection for December

Schedule of Expected Cash Collection

Particulars	Amount
December Cash Sales	$ 95,800
Collection on account;
October Sales	$ 74,700
November Sales	$ 368,400
Decmber Sales	$ 138,400
Total Cash Collection	$ 677,300

Explanation;

# October Sales : $ 415, 000 * 18 % = $74,700

#November Sales : $ 614,000 * 60 % = $ 368,400

# December Sales : $ 692,000 * 20 % = $ 138,400

2.) Prepare a shedule of expected cash disbursements for merchandise Purchase for December;

Schedule of Expected Cash Disbursements

Particulars	Amount
Payment to Suppliers;
November Purchase	$174,500
December Purchase	$112,800
Total Cash Payments	$287,300

Working Note;

December Purchases ; $ 376,000 * 30 % = $112,800

3.) Prepare Cash Budget for December . Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not paid until the following.

ASHTON COMPANY

Cash Budget

For the month of December

Particulars	Amount	Amount
Beginning Cash Balance		$ 41,000
Add: Collection from Customer		$ 677,300
Total Cash Available		$ 718,300
Less: Cash Disbursements
Payments to Suppliers for Inventory	$ 287,300
Selling and Administration Expenses	$ 388,500
New Web Server	$ 86,500
Dividend Paid	$ 10,500
Total Cash Disbursments		$ 772,800
Excess (Deficency) of cash available over disbursement		($54,500)
Financing ;
Borrowings		$ 74,500
Repayments
Interest
Total Financing		$ 74,500
Ending Cash Balance		$ 20,000