Colorado Adventures, Inc., sells snowsport equipment. Maya Grenier is the controller for Colorado Adventures and put together the below initial cash budget for the fourth quarter of the year. Colorado Adventures, Inc. Cash Budget For the Quarter Ended December 31 October November December Quarter Beginning cash balance $ 26,000 $ 20,000 $ 20,000 $ 26,000 Add collections from customers 184,000 318,000 370,000 872,000 Total cash available 210,000 338,000 390,000 898,000 Less cash disbursements: Purchases for inventory 178,500 259,000 227,500 665,000 Marketing expenses 39,500 60,000 31,000 130,500 Administrative expenses 12,500 16,000 10,500 39,000 Land purchases 8,000 8,000 Dividends paid 24,500 24,500 Total cash disbursements 255,000 343,000 269,000 867,000 Excess (deficiency) of cash available over disbursements (45,000) (5,000) 121,000 31,000 Financing: Borrowings 65,000 25,000 0 90,000 Repayments 0 0 (90,000) (90,000) Interest 0 0 (2,450) (2,450) Total financing 65,000 25,000 (92,450) (2,450) Ending cash balance $ 20,000 $ 20,000 $ 28,550 $ 28,550

The company generally borrows money during this quarter to support peak sales. The above cash budget was based on assembling the following data: a. Budgeted monthly income statements for OctoberJanuary are: October November December January Sales $ 300,000 $ 450,000 $ 250,000 $ 200,000 Cost of goods sold 210,000 315,000 175,000 140,000 Gross margin 90,000 135,000 75,000 60,000 Operating expenses: Marketing expense 39,500 60,000 31,000 25,500 Administrative expense* 22,500 26,000 20,500 19,000 Total operating expenses 62,000 86,000 51,500 44,500 Net operating income $ 28,000 $ 49,000 $ 23,500 $ 15,500 *Includes $10,000 of depreciation each month. b. Each month, 20 percent of sales are for cash and 80 percent are on credit. The collection pattern for credit sales is 10 percent collected in the month of sale, 70 percent in the first month following the month of sale, and 20 percent in the second month following the month of sale. Augusts sales totaled $100,000, and Septembers sales totaled $150,000. c. Inventory purchases are on account. Of those purchases, 50 percent are paid in the month of purchase. The remaining 50 percent is paid in the following month. Accounts payable at September 30 for inventory purchases during September total $63,000. d. The merchandise inventory on October 1 is $42,000. The desired ending inventory for each month is 20 percent of the cost of the merchandise to be sold the next month. e. Dividends of $24,500 will be declared and paid in October. f. Land costing $8,000 will be purchased for cash in November. g. The cash balance on October 1 is $26,000. The company wants to have an ending cash balance of at least $20,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in increments of $500 at the beginning of each month. The interest rate on these loans is 1 percent per month (simple interestthat is, assume no compounding). The company would, as possible given minimum requirement, repay the loan plus accumulated interest at the end of the quarter. Colorado Adventures president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: a. Credit sales still account for 80 percent of total sales. However, the collection period for October, November, and December credit sales is 35 percent collected in the month of sale, 50 percent collected in the month following sale, and 15 percent in the second month following sale. (Any credit sales from August and September collected during the fourth quarter use the collection percentages noted originally in the previous section.) b. The company maintains its ending inventory levels for October, November, and December at 25 percent of the cost of merchandise to be sold in the following month. (The merchandise inventory at October 1 remains $42,000 and accounts payable for inventory purchases at September 30 remains $63,000 as noted originally in the previous section.) In addition, the president is considering increasing dividends declared and paid in October by 40% and wants this reflected on the revised cash budget.

Prepare the cash budget for October, November, and December, and for the quarter in total.