2. You have been asked to prepare a December cash budget for Ashton Company, a distributor of...
Question:
2. 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 $47,000. b. Actual sales for October and November and expected sales for December are as follows:
October | November | December | |
Cash sales | $34,000 | $38,000 | $43,000 |
Sales on account | $200,000 | $270,000 | $320,000 |
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 $140,000 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 $85,000, all of which will be paid in December.
d.Selling and administrative expenses are budgeted at $240,000 for December. Of this amount, $25,000 is for depreciation.
e.A new Web server for the Marketing Department costing $30,000 will be purchased for cash during December, and dividends totaling $5,000 will be paid during the month.
f.The company maintains a minimum cash balance of $10,000. An open line of credit is available from the company's bank to bolster the cash position as needed.
Required:
2.1. Prepare a schedule of expected cash collections for December.
2.2. Prepare a schedule of expected cash disbursements for merchandise purchases for December.
2.3. 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.