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Pane 4 SECTION B Do Question 11 & ONE (1) Other Question from this Section (35 MARKS) QUESTION 11 The management accountant at Woodstock Merchandising Sharon Meade, is in the process of preparing the cash budget for the business for the quarter ending September 30, 2019. Extracts from the sales and purchases budgets are as follows: Month 2019 Cash Sales Purchases On Account May June July August September $138,100 $156,500 $165,275 $118.440 $205,220 Sales On Account $480,000 $600,000 $650,000 $700,000 $800,000 $345,000 $380,000 $400,000 $480,000 $540,000 (0) 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 3/30, n90: 60% in the month of sale 30% in the first month following the sale 10% in the second month following the sale Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60 85% in the month in which the inventory is purchased 15% in the following month (1) The management of Woodstock Merchandising is in the process of upgrading its fleet of motor vehicles. During September the business expects to sell an old delivery motor van that cost $540,000 at a gain of $54,000 to an employee. Accumulated depreciation on this motor vehicle at that time is expected to be $334,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in September, the balance will be settled in two equal amounts in October & November of 2019. (iv) A new air conditioning unit, which is estimated to cost $350,000, will be purchased in August The manager has made arrangements with the suppliers to make a cash deposit of 40% upon signing of the agreement in August. The balance will be settled in five (5) equal monthly instalments beginning September of 2019 A long-term bond purchased by Woodstock Merchandising 2 years ago, with a face value of $450,000 will mature on July 15, 2019. 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 grote of 5% per annum is also expected to be collected. (vi) Faced operating expenses which accrue evenly throughout the year, are estimated to be $2,088,000 per annum, [including depreciation on non-current assets of $504,000 per annum] and are settled monthly (vil) Other operating expenses which accrue evenly throughout the year are expected to be $174,000 per quarter and are settled monthly Continued........ ACCT1003 Page 5 Question 11 Continued... (vili) The management of Woodstock Merchandising has negotiated with a tenant to rent office space to her beginning August 1. The rental is expected to be $552,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on August 1. Thereafter, monthly rental income becomes due at the beginning of each month. (ix) Wages and salaries are expected to be $3,264,000 per annum and will be paid monthly. (x) A compensation payment of $355,000 to a former employee for a back injury sustained in an accident in the business storage facility, not covered by insurance, becomes due and payable on July 15, 2019 (xi) The cash balance on June 30, 2019 is expected to be an overdraft of $148,000 Required: Prepare a schedule of budgeted cash collections for sales on account for each of the months July to September, 2019. (5 marks) (b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2019 (4 marks) Prepare a cash budget, with a total column, for the quarter ending September 30, 2019, showing the receipts and payments for each month. (22% marks) Companies in the industry in which Woodstock Merchandising operates are required to maintain a minimum cash balance of $175,000 each month. Based on the budget prepared, will the business be meeting this requirement? Suggest three (3) possible steps (other than borrowing), that may be taken by the management of the company to improve the organization's cash flow. (3% marks) Pane 4 SECTION B Do Question 11 & ONE (1) Other Question from this Section (35 MARKS) QUESTION 11 The management accountant at Woodstock Merchandising Sharon Meade, is in the process of preparing the cash budget for the business for the quarter ending September 30, 2019. Extracts from the sales and purchases budgets are as follows: Month 2019 Cash Sales Purchases On Account May June July August September $138,100 $156,500 $165,275 $118.440 $205,220 Sales On Account $480,000 $600,000 $650,000 $700,000 $800,000 $345,000 $380,000 $400,000 $480,000 $540,000 (0) 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 3/30, n90: 60% in the month of sale 30% in the first month following the sale 10% in the second month following the sale Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60 85% in the month in which the inventory is purchased 15% in the following month (1) The management of Woodstock Merchandising is in the process of upgrading its fleet of motor vehicles. During September the business expects to sell an old delivery motor van that cost $540,000 at a gain of $54,000 to an employee. Accumulated depreciation on this motor vehicle at that time is expected to be $334,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in September, the balance will be settled in two equal amounts in October & November of 2019. (iv) A new air conditioning unit, which is estimated to cost $350,000, will be purchased in August The manager has made arrangements with the suppliers to make a cash deposit of 40% upon signing of the agreement in August. The balance will be settled in five (5) equal monthly instalments beginning September of 2019 A long-term bond purchased by Woodstock Merchandising 2 years ago, with a face value of $450,000 will mature on July 15, 2019. 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 grote of 5% per annum is also expected to be collected. (vi) Faced operating expenses which accrue evenly throughout the year, are estimated to be $2,088,000 per annum, [including depreciation on non-current assets of $504,000 per annum] and are settled monthly (vil) Other operating expenses which accrue evenly throughout the year are expected to be $174,000 per quarter and are settled monthly Continued........ ACCT1003 Page 5 Question 11 Continued... (vili) The management of Woodstock Merchandising has negotiated with a tenant to rent office space to her beginning August 1. The rental is expected to be $552,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on August 1. Thereafter, monthly rental income becomes due at the beginning of each month. (ix) Wages and salaries are expected to be $3,264,000 per annum and will be paid monthly. (x) A compensation payment of $355,000 to a former employee for a back injury sustained in an accident in the business storage facility, not covered by insurance, becomes due and payable on July 15, 2019 (xi) The cash balance on June 30, 2019 is expected to be an overdraft of $148,000 Required: Prepare a schedule of budgeted cash collections for sales on account for each of the months July to September, 2019. (5 marks) (b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2019 (4 marks) Prepare a cash budget, with a total column, for the quarter ending September 30, 2019, showing the receipts and payments for each month. (22% marks) Companies in the industry in which Woodstock Merchandising operates are required to maintain a minimum cash balance of $175,000 each month. Based on the budget prepared, will the business be meeting this requirement? Suggest three (3) possible steps (other than borrowing), that may be taken by the management of the company to improve the organization's cash flow. (3% marks)
