Problem 5-35

Waterway Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firms marketing director, has completed the following sales forecast.

Month		Sales		Month		Sales
January		$900,400		July		$1,508,900
February		$1,001,400		August		$1,508,900
March		$900,400		September		$1,604,100
April		$1,157,100		October		$1,604,100
May		$1,259,800		November		$1,508,900
June		$1,401,200		December		$1,700,600

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

	All sales are made on credit.
	Waterways excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale.
	Cost of goods sold, Waterways largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased.
	All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase.
	Hourly wages and fringe benefits, estimated at 30% of the current months sales, are paid in the month incurred.
	General and administrative expenses are projected to be $1,563,500 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits		$	323,500
Advertising			374,900
Property taxes			141,100
Insurance			194,200
Utilities			178,100
Depreciation			351,700
Total		$	1,563,500

Operating income for the first quarter of the coming year is projected to be $321,100. Waterway is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.

Waterway maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $56,400.

Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) Cash Receipts Budget May June April Total Cash Receipts February sales 400560 400560 March sales 540240 3601601 540240 April sales 94260 462840 694260 X.. May sales 755880 755880 X XLRRRRRRRRRRRRR Totals 940800 ERRRRRRRR 1218720 1054420 2390940 503920 Accounts Receivable balance at the end of second quarter of 2015 $1