Question 6: Master Budgeting

Time: 40 minutes

Total: 24 marks

The following information pertains to Stark Corporation:

Month

Sales

Purchases

Jan $30,000 Feb 34,000 Mar 38,000 Apr 42,000 May 48,000 June 60,000

$10,000 12,000 14,000 16,000 18,000 20,000

Cash is collected from customers in the following manner:

Month of sale*

Month following sale

Two months following sale Amount uncollectible

30% 50% 15% 5 %

* Customers paying in the month of sale receive a 2% cash discount.

40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

a. Prepare a summary of cash collections for the 2nd quarter. (12 marks)

b. Prepare a summary of cash disbursements for the 2nd quarter.