Cash Budget with Supporting Schedules (LO2, LO4, L08 ...



Cash Budget with Supporting Schedules (LO2, LO4, L08) CHECK FIGURE (2a) May purchases: $395,500 (3) June 30 cash balance: $42,070 Fowkes & Sons sells bicycles. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of dirt bikes, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for April–July are: April May June July Sales $550,000 $580,000 $520,000 $480,000 Cost of goods sold 385,000 406,000 364,000 336,000 Gross margin 165,000 174,000 156,000 144,000 Selling and administrative expenses: Selling expense 72,000 74,000 75,000 73,000 Administrative expense* 53,000 54,000 56,000 55,000 Total selling and administrative expenses 125,000 128,000 131,000 128,000 Net operating income $ 40,000 $ 46,000 $ 25,000 $ 16,000 *Includes $14,000 of depreciation each month. b. Sales are 30% for cash and 70% on account. c. Sales on account are collected over a three-month period with 20% collected in the month of sale, 60% collected in the first month following the month of sale, and the remaining 20% collected in the second month following the month of sale. February’s sales totaled $340,000, and March’s sales totaled $380,000. d. 40% of a month’s inventory purchases are paid for in the month of purchase; the remaining 60% are paid in the following month. Accounts payable at March 31 for inventory purchases during March total $177,450. e. Each month’s ending inventory must equal 25% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $96,250. f. Dividends of $39,000 will be declared and paid in April. g. Land costing $60,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $30,000 at the end of each month. i. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total of $50,000. The interest rate on these loans is 1% per month and for simplicity we will assume the interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: 1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total. 2. Prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June. b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. 3. Prepare a cash budget for the third quarter by month as well as in total for the quarter.

1. Collections on sales:

| | |April |May |June |Quarter |

| |Cash sales |$165,000 |$174,000 |$156,000 |$  495,000 |

| |Sales on account: | | | | |

| |February: $340,000 × 70% × 20% |47,600 | | |47,600 |

| |March: $380,000 × 70% × 60%, 20% |159,600 |53,200 | |212,800 |

| |April: $550,000 × 70% × 20%, 60%, 20% |77,000 |231,000 |77,000 |385,000 |

| |May: $580,000 × 70% × 20%, 60% | |81,200 |243,600 |324,800 |

| |June: $520,000 × 70% × 20% |             |              |   72,800 |      72,800 |

| |Total cash collections |$449,200 |$539,400 |$549,400 |$1,538,000 |

2. a. Inventory purchases budget:

| |April |May |June |July |

|Budgeted cost of goods sold |$385,000 |$406,000 |$364,000 |$336,000 |

|Add desired ending inventory* | 101,500 |  91,000 |   84,000 | |

|Total needs |486,500 |497,000 |448,000 | |

|Less beginning inventory |   96,250 | 101,500 |   91,000 | |

|Required inventory purchases |$390,250 |$395,500 |$357,000 | |

*25% of the next month’s budgeted cost of goods sold.

b. Schedule of expected cash disbursements for inventory:

| |April |May |June |Quarter |

|Accounts payable, March 31 |$177,450 | | |$  177,450 |

|April purchases ($390,250 × 40%, 60%) |156,100 |$234,150 | |390,250 |

|May purchases ($395,500 × 40%, 60%) | |158,200 |$237,300 |395,500 |

|June purchases ($357,000 × 40%) |             |              | 142,800 |    142,800 |

|Total cash disbursements |$333,550 |$392,350 |$380,100 |$1,106,000 |

3.

|Fowkes & Sons |

|Cash Budget |

|For the Quarter Ended June 30 |

| | | | | | |

| |April |May |June | |Quarter |

|Cash balance, beginning |$ 52,000 |$ 30,650 |$ 30,700 | |$    52,000 |

|Add collections from sales | 449,200 | 539,400 | 549,400 | | 1,538,000 |

|Total cash available | 501,200 | 570,050 | 580,100 | | 1,590,000 |

|Less disbursements: | | | | | |

|Purchases for inventory |333,550 |392,350 |380,100 | |1,106,000 |

|Selling expenses |72,000 |74,000 |75,000 | |221,000 |

|Administrative expenses |39,000 |40,000 |42,000 | |121,000 |

|Land purchases |0 |60,000 |0 | |60,000 |

|Dividends paid |   39,000 |          0 |          0 | |     39,000 |

|Total disbursements | 483,550 | 566,350 | 497,100 | | 1,547,000 |

|Excess (deficiency) of cash |   17,650 |    3,700 |  83,000 | |     43,000 |

|Financing: | | | | | |

|Borrowing |13,000 |27,000 |0 | |40,000 |

|Repayment |0 |0 |(40,000) | |(40,000) |

|Interest |          0 |          0 |     (930) |* |         (930) |

|Total financing |  13,000 |   27,000 | (40,930) | |         (930) |

|Cash balance, ending |$ 30,650 |$ 30,700 |$ 42,070 | |$    42,070 |

|* |$13,000 × 12% × 3/12 = |$390 |

| |$27,000 × 12% × 2/12 = | 540 |

| | |$930 |

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