Cash Budget

The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	June		July		August
Sales	$160,000		$185,000		$200,000
Manufacturing costs	66,000		82,000		105,000
Selling and administrative expenses	40,000		46,000		51,000
Capital expenditures	_		_		120,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of June 1 include cash of $42,000, marketable securities of $25,000, and accounts receivable of $198,000 ($150,000 from May sales and $48,000 from April sales). Sales on account in April and May were $120,000 and $150,000, respectively. Current liabilities as of June 1 include $13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $24,000 will be made in July. Mercury Shoes' regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management wants to maintain a minimum cash balance of $40,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for June, July, and August. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency). Use the minus sign to indicate an overall cash decrease and deficiency.

Mercury Shoes Inc.
Cash Budget
For the Three Months Ending August 31
	June	July	August
Estimated cash receipts from:
Cash sales	$fill in the blank dcb9f4f43023fba_1	$fill in the blank dcb9f4f43023fba_2	$fill in the blank dcb9f4f43023fba_3
Collection of accounts receivable	fill in the blank dcb9f4f43023fba_4	fill in the blank dcb9f4f43023fba_5	fill in the blank dcb9f4f43023fba_6
Total cash receipts	$fill in the blank dcb9f4f43023fba_7	$fill in the blank dcb9f4f43023fba_8	$fill in the blank dcb9f4f43023fba_9
Estimated cash payments for:
Manufacturing costs	$fill in the blank dcb9f4f43023fba_10	$fill in the blank dcb9f4f43023fba_11	$fill in the blank dcb9f4f43023fba_12
Selling and administrative expenses	fill in the blank dcb9f4f43023fba_13	fill in the blank dcb9f4f43023fba_14	fill in the blank dcb9f4f43023fba_15
Capital expenditures			fill in the blank dcb9f4f43023fba_16
Other purposes:
Income tax		fill in the blank dcb9f4f43023fba_17
Dividends			fill in the blank dcb9f4f43023fba_18
Total cash payments	$fill in the blank dcb9f4f43023fba_19	$fill in the blank dcb9f4f43023fba_20	$fill in the blank dcb9f4f43023fba_21
Cash increase or (decrease)	$fill in the blank dcb9f4f43023fba_22	$fill in the blank dcb9f4f43023fba_23	$fill in the blank dcb9f4f43023fba_24
Cash balance at beginning of month	fill in the blank dcb9f4f43023fba_25	fill in the blank dcb9f4f43023fba_26	fill in the blank dcb9f4f43023fba_27
Cash balance at end of month	$fill in the blank dcb9f4f43023fba_28	$fill in the blank dcb9f4f43023fba_29	$fill in the blank dcb9f4f43023fba_30
Minimum cash balance	fill in the blank dcb9f4f43023fba_31	fill in the blank dcb9f4f43023fba_32	fill in the blank dcb9f4f43023fba_33
Excess or (deficiency)	$fill in the blank dcb9f4f43023fba_34	$fill in the blank dcb9f4f43023fba_35	$fill in the blank dcb9f4f43023fba_36

2. The budget indicates that the minimum cash balance....................(will/will not) be maintained in August. This situation can be corrected by...................(investing/borrowing) and/or by the.................(purchase/sale) of the marketable securities, if they are held for such purposes. At the end of June and July the cash balance will................(exceed/be short of) the minimum desired balance.