Question

Preston Corporation is a manufacturer and distributor of electronic devices. Management has asked you to prepare a cash budget for the upcoming year. The following is the company’s budgeted information for the 2020 fiscal year:

	Q1	Q2	Q3	Q4	Period end
Sales (all on credit)	41,600	33,410	44,850	54,340	174,200
Direct Material Purchases	12,480	10,023	13,455	16,302	52,260
Direct Labor	16,640	13,364	17,940	21,736	69,680
Marketing Expense	4,160	3,341	4,485	5,434	17,420
Building Lease Payments	2,080	2,080	2,080	2,080	8,320
Depreciation Expense	4,160	3,341	4,485	5,434	17,420

Additional information is as follows:

• Preston requires ending cash balance for each period to be at a minimum of $12,000. The ending cash balance at Q4-2019 was $12,300.
• All sales are on credit. The collection pattern for sales is 60% in the quarter of sale, 40% in the following quarter.
• There were a total of $15,500 in accounts receivable as at Q4-2019 that is to be collected in full in Q1- 2020.
• Purchases of direct materials are paid 50% in the quarter of purchase and 50% in the quarter following the purchase.
• The total direct material purchases in Q4-2019 was $11,000.
• All other expenses will be paid in full in the quarter they are budgeted for.
• Equipment costing a total of $32,000 is to be purchased in the year, half of it will be paid for in Q1, half in Q3.
• Preston has an open line of credit which is used for any borrowings the company may need. Any borrowings are done in multiples of $100.

a) Complete a schedule of cash receipts for the 2020 fiscal year.

Preston Corporation Schedule of Cash receipts For the Year ended December 31, 2020
	Q1	Q2	Q3	Q4	Period end

b) Prepare a cash budget for the 2020 fiscal year.

Preston Corporation Cash Budget For the Year ended December 31, 2020
	Q1	Q2	Q3	Q4	Period end

*There is no data for repayments and interest

Answer 1

A an AwNN 4 04-2019 6 Q1 7 8 Q2 9 10 Q3 11 12 Q4 13 14 Total B C D E F Preston Corporation Schedule of Cash Receipts For the Year ended December 31, 2020 01 02 03 04 Period End $ 15,500 $ 15,500 $ 24,960 $ 16,640 $ 41,600 ($41,600 * 60%) ($41,600 * 40%) $ 20,046 $ 13,364 33,410 ($33,410 * 60%) ($33,410 * 40%) $ 26,910 $ 17,940 $ 44,850 ($44,850 * 60%) ($44,850 * 40%) $ 32,604 $ 32,604 ($54,340 * 60%) $ 40,460 $ 36,686 $ 50,544 $ 1,67,964

A B C D E Preston Corporation 2 Cash Budget For the Year ended December 31,2020 01 Q2 Q3 Q4 Period End 5 Opening Cash Balance $ 12,300.00 $ 12,040.00 $ 12,089.50 $ 12,019.50 $ 48,449.00 6 Add: Cash Collections $ 40,460.00 $ 36,686.00 $ 40,274.00 $ 50,544.00 $ 1,67,964.00 7 Total Cash Available $52,760.00 $48,726.00 $ 52,363.50 $62,563.50 $2,16,413.00 8 Less: Cash Disbursements 9 Direct Material Purchases $ 11,740.00 $ 11,251.50 $ 11,739.00 $ 14,878.50 $ 49,609.00 10 Direct Labor $ 16,640.00 $13,364.00 $ 17,940.00 $ 21,736.00 $ 69,680.00 11 Marketing Expense $ 4,160.00 $ 3,341.00 $ 4,485.00 $ 5,434.00 $ 17,420.00 12 Building Lease Payments $ 2,080.00 $ 2,080.00 $ 2,080.00 $ 2,080.00 $ 8,320.00 13 Equipment $ 16,000.00 $ 16,000.00 $ 32,000.00 14 15 Total Cash Disbursements | $50,620.00 $ 30,036.50 $ 52,244.00 $ 44,128.50 $ 1,77,029.00 16 Excess (Deficiency of Cash) $ 2,140.00 $ 18,689.50 $ 119.50 $ 18,435.00 $ 39,384.00 17 Financing: 18 Borrowings $ 9,900.00 $ 11,900.00 $ 21,800.00 19 Repayments $ -6,600.00 $ -6,400.00 $ -13,000.00 20 Interest 21 22 Total Financing $ 9,900.00 $ -6,600.00 $ 11,900.00 $ -6,400.00 $ 8,800.00 23 Ending Cash Balance $12,040.00 $12,089.50 $ 12,019.50 $ 12,035.00 24