Question
Ashton Company, a distributor of exercise equipment, is preparing a cash budget for December. It provided the following information: The cash balance on December 1
Ashton Company, a distributor of exercise equipment, is preparing a cash budget for December. It provided the following information:
The cash balance on December 1 is $44,400.
Actual sales for October and November and expected sales for December are as follows:
October | November | December | |
---|---|---|---|
Cash sales | $ 72,600 | $ 86,600 | $ 89,000 |
Sales on account | $ 425,000 | $ 601,000 | $ 617,000 |
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% are uncollectible.
Purchases of inventory will total $358,000 for December. Thirty percent of a months inventory purchases are paid during the month of purchase. The accounts payable remaining from Novembers inventory purchases total $207,000, all of which will be paid in December.
Selling and administrative expenses are budgeted at $459,000 for December. Of this amount, $64,500 is for depreciation.
A new web server for the Marketing Department costing $114,000 will be purchased for cash during December, and dividends totaling $9,500 will be paid during the month.
The company maintains a minimum cash balance of $20,000. An open line of credit is available from the companys bank to increase its cash balance as needed.
Required:
For December:
- Calculate the expected cash collections.
- Calculate the expected cash disbursements for merchandise purchases.
- Prepare a cash budget. Indicate in the financing section any borrowing needed during the month. Assume any interest will not be paid until the following month.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started