Question

ABC CORP BALANCE SHEET December 31, 2010 $ 100 Cash Marketable Securities 0 Accounts Receivables 2,000 Inventory 140 Fixed Assets (net) 2,000 Total Assets ===== $ 2,380 Accounts Payable Notes Payable 0 Retained earnings Common Stock 1,400 Total of Both Liabilities & Equity For the year ended 12/31/10 ABC CORP generated Sales of $12,000 and Net Income of $120. The net profit margin this year is considered normal by ABC CORP. Cost of Goods Sold was $8,400 in 2010. Cost of Goods Sold consistently averages seventy per cent of Sales, and will continue to do so in the future. Depreciation Expense was $500 in 2010. No Depreciation Expense was, or ever will, be included in Cost

Answer 1

Answer:

The Cash Budget

	Note No	Nov 10 ($)	Dec 10 ($)	Jan 11 ($)
Sales		2,000	4,000	1,000
Cost of Goods Sold		1,400	2,800	=1,000 x 70% = 700
Beginning Inventory		280	560
Ending Inventory		560	140
Purchases		1,680	2,380
Cash Collections	1	=1,000+1,000 =2,000	=2,000+1,000 =3,000	=500+2,000 =2,500
Collected in Month of Sale		=50% x 2,000 = 1,000	=50% x 4,000 = 2,000	=50% x 1,000 =500
Collected month after sale		= 50% x 2,000 = 1,000	=50% x 2,000 =1,000	=50% x 4,000 = 2,000
Other Inflow
Interest Income Payments		0	0	0
Total Inflows		2,000	3,000
Outflows
Payment for Purchases	2	1,680	2,380
Interest Payments	3	0	0	0
Overheads Payments	4	100	100	100
Fixed Asset Additions	5	0	0	0
Dividend Payments	6	0	15	0
Income Tax Payments	7	0	0	0
Total Outflows		1,780	2495
Inflow - Outflow		220	505
Beginning Cash		=10% x 2,000 =200	20
Desired ( Ending ) Cash	8	=10% x 4,000 =400	100
Cash produced over + or Under - Immediate Need		=220+200-400 =20	=20+505-100 = 425
Loan Required		0	0
Loan Repaid		0	0
Loan Balance		0	0
Securities Purchased		0	0
Securities Sold		0	0
Securities Balance		0	0

Notes :

1. Cash Collection: It is given that one half of the sales are collected in month of sale and remainder in following month

2. All purchases made are paid in month of following purchase means in same month

3. It is given that Interest Payment in year 2010 be $ 40. Therefore due to lack of information we assumed that there is no interest cost in month of nov 10 and dec 10 and also there will be no loan balance in that month

4. As per given information overheads includes Fixed costs , variable overheads are not given . Therefore , we consider only fixed costs

5.No fixed Asset addition in month of Nov 10 and Dec 10 as there is no specific information given

6. It is given that dividend will be paid at end of each quarter. For December 2010 Dividend amount paid be 15 ( 60/4 )

7. It is given that due to losses in ABC Corp as per the tax code the losses carry forward , therefore there is no Income Tax Payments and no Income Tax

8. Desired Cash Balance is 10% of Next Months Sale. Therefore,

Desired Cash Balance in :

Nov 10 :4000 ( dec sale ) x 10% = 400

Dec 10 : 1,000 ( Jan 11 sale ) x 10% = 100

Beginning cash Balance for Nov 10 be the desired cash balance ending for the month of Oct 10 as there is no information for oct 10 month

Beginning cash balance in Nov 10 =   2000 ( Oct Sale ) x 10% = 200