Question

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Problem 8-21 Schedules of Expected Cash Collections and Disbursements (LOB-2, L08-4LO8-8] You have been asked to prepare a December cash budoet for Ashton Company, a distributor of exercise equipment. The following Information is available about the company's operations The cash balance on December 547500 b. Actual sales for October and November and expected sales for December are as follows: Otober Novexter Dec 3 , 00 3, 00 $ 405.000 615,000 $628000 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 wil total $151,000 for December Thirty percent of a months inventory purchases are paid during the month af purchase. The accounts payable remaining from November's inventary purchases total $194.500, all of which will be paid in December d. Selling and administrative expenses are budgeted at $512000 for December of this amount 591400 is for depreciation e. Anew web server for the Marketing Department costing $104,000 will be purchased for cash kuring December, and dividends totaling $11,500 will be paid during the month I The company maintains a minimum cash balance of $20,000. An openine 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 asbursements 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 unto the following month Complete this question by entering your answers in the tabs below.

Answer 1

Answer -

1. Answer -

a. Cash sales for December = $89600

As per given information, Sales on account are collected over a three-month period. 20% collected in the month of sales, 60% collected in the month following sales, and 18% collected in the second month following sales.

So,

b. October sales on account collected in December = 18% * $405000 = $72900

c. November sales on account collected in December = 60% * $615000 = $369000

d. December sales on account collected in December = 20% * $628000 = $125600

Therefore,

Total cash collection = $89600 + $72900 + $369000 + $125600 = $657100

2. Answer -

As per given information, 30% of a month's inventory purchases are paid during the month of purchase.

Purchases of inventory for month of December = $351000

November’s accounts payable paid in month of December = $194500

Therefore,

Expected cash disbursements for merchandise purchases for December:

Total cash payment = November’s accounts payable + 30% of purchases of inventory for month December

= $194500 + [30% * $351000]

= $299800

3. Answer -

Ashton Company
Cash Budget
For the Month of December
Beginning cash balance		$47600
Add: Collections from customers		$657100
Total cash available		$704700
Less: Cash disbursements:
Payments to suppliers for inventory	$299800
Selling and administrative expenses	$430600
New web server	$104000
Dividends paid	$11500
Total cash disbursements		$845900
Excess (deficiency) of cash available over disbursements		($141200)
Financing:
Borrowings		$161200
Repayments
Interest
Total financing		$161200
Ending cash balance		$20000

Calculation:

a. Total cash available:

= Beginning cash balance + Collections from customers

= $47600 + $657100

= $704700

b. Selling and administrative expense:

= Budgeted selling and administrative expense - Depreciation expense

= $5120000 - $81400

= $430600

Note: Depreciation expense is non-cash expense.

c. Total cash disbursements:

= Payments to suppliers for inventory + Selling and administrative expense + New web server + Dividends paid

= $299800 + $430600 + $104000 + $11500

= $845900

d. Deficiency of cash available over disbursements:

= Total cash disbursements - Total cash available

= $845900 - $704700

= $141200

e. Financing:

As per given information, company maintains a minimum cash balance of $20000.

So,

= Deficiency of cash available over disbursements + Minimum cash balance required

= $141200 + $20000

= $161200