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Item 1

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

1. The cash balance on December 1 is $50,600.

2. Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	74,400	$	86,000	$	85,000
Sales on account	$	515,000	$	533,000	$	672,000

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.

3. Purchases of inventory will total $317,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $190,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at $526,000 for December. Of this amount, $58,600 is for depreciation.

5. A new web server for the Marketing Department costing $78,000 will be purchased for cash during December, and dividends totaling $15,500 will be paid during the month.

6. The company maintains a minimum cash balance of $20,000. An open line 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 disbursements 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 until the following month.

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