Question

The accountant for Gibson’s Dress Shop prepared the following cash budget. Gibson’s desires to maintain a cash cushion of $22,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 1 percent per month.

Required

1. Complete the cash budget by filling in the missing amounts.

2. Determine the amount of net cash flows from operating activities Gibson’s will report on the third quarter pro forma statement of cash flows.

3. Determine the amount of net cash flows from financing activities Gibson’s will report on the third quarter pro forma statement of cash flows.

   Cash Budget July August September Section 1: Cash receipts Beginning cash balance $46,500 $22,000 $22,000 Add cash receipts 188,000 208,000 248,600 Total cash available 234,500 230,000 270,600 Section 2: Cash payments For inventory purchases 169,526 144,230 178,152 For S&A expenses 58,500 64,560 65,432 For interest expense 0 Total budgeted disbursements 228,026 Section 3: Financing activities Surplus (shortage) 6,474 Borrowing (repayments) 15,526 Ending cash balance $22,000 $22,000 $22,000

Determine the amount of net cash flows from both operating and financing activities Gibson's will report on the third quarter pro forma statement of cash flows. (Round intermediate calculations and final answers to the nearest whole dollar amount.)

	Net cash (operating activities) Net cash (financing activities)

Answer 1

Solution Required a. July August September $46,500 $188,000 $234,500 $22,000 $208,000 $230,000 $22,000 $248,600 $270,600 Cash Budget Section 1: Cash receipts Beginning cash balance Add cash receipts Total cash available Section 2: Cash payments For inventory purchases For S&A expenses For interest expense Total budgeted disbursements Section 3: Financing activities Surplus (shortage) Borrowing (repayments) Ending cash balance $169,5261 $58,500 $0 $228,026 $144,230 $64,5601 $155 $208,9451 $178,152 $65,432 $165 $243,749 | $6,474 $15,526 $22,000 $945 $22,000 $26,851 ($4,851) $22,000 I Required b. Statement showing cash flow from operating activities July $ 188,000 ($169,526) ($58,500) Cash receipts from customer Cash paid for inventories Cash paid for S&A expenses Cash paid for interest expense Net cash generated (used) from operating activities August $208,000 ($144,230) ($64,560) ($155) September 3rd Quarter $248,600 $644,600 ($178,152)| ($491,908) ($65,432) ($188,492) ($165) ($320) ($40,026) ($945) $4,851 ($36,120) Required c. Statement showing cash flow from financing activities July $15,526 August $945 September ($4,851) 3rd Quarter $11,620 Borrowing (repayments) Net cash generated (used) from financing activities $15,526 $945 ($4,851) $11,620 Net cash (operating activities) Net cash (financing activities) ($36,120) Cash outflow $11,620 Cash inflow Note: Payment of interest expense is considered as operating activities, alternatively, it may be considered as financing activities.