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: The cash balance on December 1 is $45,000. Actual sales for October and November and expected sales for December are as follows: October November December Cash sales $ 80,800 $ 74,000 $ 98,200 Sales on account $ 525,000 $ 559,000 $ 643,000 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. Purchases of inventory will total $371,000 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 $201,500, all of which will be paid in December. Selling and administrative expenses are budgeted at $506,000 for December. Of this amount, $89,100 is for depreciation. A new web server for the Marketing Department costing $95,000 will be purchased for cash during December, and dividends totaling $13,500 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.
a. Calculate the expected cash collections for December.
b. Calculate the expected cash disbursements for merchandise purchases for December.
c. 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:

Explanation:

Required:1.Calculate the expected cash collections for December. CREDIT SALES COLLECTIONS HISTORY20 % in the month of Sale (OCTOBER) 60 % in the First month after Sales (NOVEMBER) 18 % in the Second month after Sales (DECEMBER) 2 % Projection of Uncollectible Accounts receivable 100 %CASH COLLECTIONS FOR DECEMBER December cash sales................................................$83,000Collections on account:October sales: $400,000×18%.............................72,000November sales: $525,000×60%.........................315,000December sales: $600,000×20%.........................120,000Total cash collections..........................................$590,0002.Calculate the expected cash disbursements for merchandise purchases for December. CASH PAYMENTS HISTORY 30 % Paid in the month of purchases 70 % Paid in the First Month after purchased 100 % CASH PAYMENTS TO SUPPLIERSNovember purchases (accounts payable)..............$161,000December purchases: $280,000×30%.................84,000Total cash disbursements......................................$245,000

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. ASTHON COMPANY CASH BUDGET FOR MONTH ENDED 12-31-17 Cash Balance 12/1 40 000 Add: Cash Receipts Collections from customers 590 000 Total Cash Available 630 000 Less: Cash Disbursements Payments to suppliers 245 000 Selling & Administration Expenses 380 000 (Total - depreciation = 430 000 - 50 000) New Web Server 76 000 Dividends Paid 9 000 Total Cash Disbursements 710 000 Excess (deficiency) of cash available over disbursements (80 000) Financing: Borrowings 100 000 Repayments 0 Interest 0 Total financing 100 000 Ending cash balance 20 000