Question

Wildhorse Company expects to have a cash balance of $124,200 on January 1, 2022. These are the relevant monthly budget data for the first two months of 2022.
1. Collections from customers: January $191,700, February $394,200.
2. Payments to suppliers: January $108,000, February $202,500.
3. Wages: January $81,000, February $108,000. Wages are paid in the month they are incurred.
4. Administrative expenses: January $56,700, February $64,800. These costs include depreciation of $2,700 per month. All other costs are paid as incurred.
5. Selling expenses: January $40,500, February $54,000. These costs are exclusive of depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $32,400 in cash. Wildhorse Company has a line of credit at a local bank that enables it to borrow up to $67,500. The company wants to maintain a minimum monthly cash balance of $54,000.

Answer 1

Answer:

Answer is explained in the explanation section below.

Explanation:

We need to set up a cash budget for the Wildhorse Company in their first two months of the year 2022.

Company = Wildhorse

For the Two Months Ending February 2022

So, below is the Cash Budget:

                                                            January                        February

Beginning of Cash balance               $124,200                      $67500

Add: Receipts

Sale of Short Term Investments        $32400                             -

Collection from Customers                $191700                        $394200

Total Receipts                                     $224100                      $394200

Total Available Cash                          $348300                      $461700

Less: Disbursements:

Wages                                                 $81000                        $108000

Administrative Expenses                   $51300                        $62100

                                               ($54000-$2700Dep.)      ($64800-$2700Dep.)

Selling Expenses                                $40500                       $54000

Payments to Suppliers                       $108000                      $202500

Total Disbursements                          $280800                     $426600

Excess or (Deficit) of Avble Cash      $67500                        $35100

Financing:

Add: Borrowings                                      -                               $18900

Less: Repayments                                    -                                    -

Ending Cash Balance                          $67500                    $54000

Explanation: As cash availability in February is only $ 35100, the company will borrow $18900 to maintain a minimum balance of $30,000.

Borrowing in February = Minimum Balance - Available Cash

Borrowing in February = $54000-$35100

Borrowing in February = $18900