Question

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: a. The cash balance on December 1 is $40,000, b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October $ 65,000 $ 400,000 November $ 70,000 5 525,eee December $ 83,000 $ 600,000 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. c. Purchases of Inventory will total $280,000 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 $161,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $430,000 for December of this amount, $50,000 is for depreciation e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December and dividends totaling $9.000 will be paid during the month. 1. 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 Complete this question by entering your answers in the tabs below. Reg 1 and 2 Required 3 1. Calculate the expected cash collections for December 2. Calculate the expected cash disbursements for merchandise purchases for December Total cash collections < Prev 4 of 4 !!! Next >

Answer 1

1) Based on the terms , Expected collection for December is 590000 $

Workings are

	Collection	Oct	Nov	Dec
	Cash sale	65,000	70,000	83,000
Terms of payment	Credit sale
Same month	20%	80,000	1,05,000	1,20,000
Next month	60%		2,40,000	3,15,000
Second month	18%			72,000
	Total	1,45,000	4,15,000	5,90,000

Fig In $	Oct	Nov	Dec
Sales
Cash	65,000	70,000	83,000
credit	4,00,000	5,25,000	6,00,000
Total	4,65,000	5,95,000	6,83,000

2) Expected disbursement for merchandise 245000

		Oct	Nov	Dec
	Purchases			2,80,000
Terms of payment
Same month	30%			84,000
Balance	70%
	Balance payment of November			1,61,000
	Payment for merchandise			2,45,000

3) Cash budget

Ashton Company
CashBudget
FTM December
	$	$
Beginning Cash Balance		40000
Add Collection from customers		590000
Total Cash available		630000
Less: Cash disbursements
Payment to suppliers for merchandise	245000
Selling and administrative expenses	380000
New Web server	76000
Dividends Paid	9000
Total Cash disbursements		710000
Excess(deficiency) of cash available over disbursements		-80000
Financing
Borrowings	100000
Repayments	0
Interest	0
Total Financing		100000
Ending cash balance		20000