G & J Merchandising & More is a family-owned auto-parts store. You are the management accountant of the concern and have been given the task of preparing the cash budget for the business for the quarter ending March 31, 2021. Your data collection has yielded the following:

(i) Extracts from the sales and purchases budgets are as follows:

Month	Cash Sales	Sales on Account	Purchases
November	$151,100	$480,000	$390,000
December	$145,500	$600,000	$360,000
January	$159,025	$700,000	$505,000
February	$169,350	$650,000	$400,000
March	$176,200	$800,000	$518,000

(ii) An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 2/30, n90:

45% in the month of sale

30% in the first month following the sale

25% in the second month following the sale

(iii) Expected purchases include cash purchases of $25,000 in January and $18,000 in March. All other purchases are on account. Accounts payable are settled as follows, in accordance with the credit terms 4/30, n60:

75% in the month in which the inventory is purchased

25% in the following month

(iv) The management of G & J Merchandising & More is in the process of upgrading its fleet of motor vehicles. During March the company expects to sell an old Toyota Corolla motor vehicle that cost $500,000 at a gain of $45,000. Accumulated depreciation on this motor vehicle at that time is expected to be $340,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in March; the balance will be settled in two equal amounts in April & May of 2021.

(v) An air conditioning unit, which is estimated to cost $300,000, will be purchased in February. The manager has made arrangements with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in four (4) equal monthly instalments beginning March 2021.

(vi) A long-term bond purchased by G & J Merchandising & More 4 years ago, with a face value of $500,000 will mature on January 20, 2021. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5% per annum is also expected to be collected.

(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,016,000 per annum, [including depreciation on non-current assets of $42,000 per month] and are settled monthly.

(viii) Other operating expenses are expected to be $177,000 per quarter and are settled monthly. Continued................................... FINAL ASSESSMENT _DECEMBER 2020 Those who fail to prepare, are preparing to fail Uriel Salmon Page 3 Question Continued.......................................

(ix) The management of G & J Merchandising & More has negotiated with a tenant to rent office space to her beginning February 1. The rental is $540,000 per annum. The first months rent along with one months safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month.

(x) Wages and salaries are expected to be $2,976,000 per annum and will be paid monthly.

(xi) As part of its investing activities, the management of G & J Merchandising & More has just concluded an expansion project relating to the businesss storage facilities. The project required capital outlay of $1,800,000 and was funded by a loan from a family member, who is a partner in the business. $340,000 of the principal along with interest of $35,000 will become due and payable in January 2021.

(xii) The cash balance on March 31, 2021 is expected to be an overdraft of $92,000 Required:

(a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following:

A schedule of budgeted cash collections for trade receivables for each of the months January to March. (5 marks)

A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months January to March. (4 marks)

A cash budget, with a total column, for the quarter ending March 31, 2021, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place. (25 marks)

(b) Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter and has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If yes, what should these amounts be? (2 marks)

(c) Upon receipt of the budget the team manager has now informed you that the management of G & J Merchandising & More have indicated a desire to maintain a minimum cash balance of $155,000 each month. Based on the budget prepared, will the business be achieving this desired target? Given that the management does not wish to borrow any funds from outside sources, suggest three (3) internal strategies that the business may employ in order to improve the organizations monthly cash flow. Each strategy must be fully explained.

SECTION I

Requirement (a)

JANUARY $

FEBRUARY $

MARCH $

	JANUARY $	FEBRUARY $	MARCH $

	JANUARY $	FEBRUARY $	MARCH $	TOTAL $

WORKINGS

Requirement (b)

Accounts Receivable =

=

Accounts Payable =

=

Requirement (c)