Question

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. Purchases of inventory will total $351,000 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 $194,500, all of which will be paid in December. Selling and administrative expenses are budgeted at $512,000 for December. Of this amount, $81,400 is for depreciation. A new web server for the Marketing Department costing $104,000 will be purchased for cash during December, and dividends totaling $11,500 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

Answer: Incomplete question.

a. The cash balance on Dec 1 is $47,600.

b. Actual sales for October and November and expected sales for December are as follows:

Oct. Nov. Dec

Cash sales $65k. $70k. $83k

Sales on acc $400k $525k $600k

Explanation:

1. Calculate the expected cash collections for December.

Total cash sales= $85,000

Sales on account= 18% x $400,000 + 60% x $525,000 + 20% x $600,000

= $72,000 + $315,000 + $120,000

= $507,000

Cash collection for Dec.

= $85,000 + 507,000

= $592,000

2. Calculate the expected cash disbursements for merchandise purchases for December.

= purchases in Nov of $194,500 + 30% of $351,000

= 194,500+105,300

= $299,800

3. Prepare a cash budget for December.

Opening cash bal. $ 47,600

Add:

Expected cash coll. $ 592,000

Bank loan( balance). $ 226,300

Less:

Expected cash pmt. $ 299,800

Expected selling exp. $ 430,600

Web server. $104,000

Dividend. $11,500

Balance. $20,000