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Cash Budget

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	May	June	July
Sales	$125,000		$156,000		$203,000
Manufacturing costs	53,000		67,000		73,000
Selling and administrative expenses	36,000		42,000		45,000
Capital expenditures	_		_		108,000

The company expects to sell about 15% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $6,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 75% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of May 1 include cash of $48,000, marketable securities of $68,000, and accounts receivable of $139,000 ($109,000 from April sales and $30,000 from March sales). Sales on account for March and April were $100,000 and $109,000, respectively. Current liabilities as of May 1 include $11,500 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $19,000 will be made in June. Sonomas regular quarterly dividend of $6,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $37,000.

Required:

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1. Prepare a monthly cash budget and supporting schedules for May, June, and July. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.

	May	June	July
Estimated cash receipts from:
Cash sales	$fill in the blank 5a0c8f014ff9057_1	$fill in the blank 5a0c8f014ff9057_2	$fill in the blank 5a0c8f014ff9057_3
Collection of accounts receivable	fill in the blank 5a0c8f014ff9057_4	fill in the blank 5a0c8f014ff9057_5	fill in the blank 5a0c8f014ff9057_6
Total cash receipts	$fill in the blank 5a0c8f014ff9057_7	$fill in the blank 5a0c8f014ff9057_8	$fill in the blank 5a0c8f014ff9057_9
Estimated cash payments for:
Manufacturing costs	$fill in the blank 5a0c8f014ff9057_10	$fill in the blank 5a0c8f014ff9057_11	$fill in the blank 5a0c8f014ff9057_12
Selling and administrative expenses	fill in the blank 5a0c8f014ff9057_13	fill in the blank 5a0c8f014ff9057_14	fill in the blank 5a0c8f014ff9057_15
Capital expenditures			fill in the blank 5a0c8f014ff9057_16
Other purposes:
Income tax		fill in the blank 5a0c8f014ff9057_17
Dividends			fill in the blank 5a0c8f014ff9057_18
Total cash payments	$fill in the blank 5a0c8f014ff9057_19	$fill in the blank 5a0c8f014ff9057_20	$fill in the blank 5a0c8f014ff9057_21
Cash increase or (decrease)	$fill in the blank 5a0c8f014ff9057_22	$fill in the blank 5a0c8f014ff9057_23	$fill in the blank 5a0c8f014ff9057_24
Cash balance at beginning of month	fill in the blank 5a0c8f014ff9057_25	fill in the blank 5a0c8f014ff9057_26	fill in the blank 5a0c8f014ff9057_27
Cash balance at end of month	$fill in the blank 5a0c8f014ff9057_28	$fill in the blank 5a0c8f014ff9057_29	$fill in the blank 5a0c8f014ff9057_30
Minimum cash balance	fill in the blank 5a0c8f014ff9057_31	fill in the blank 5a0c8f014ff9057_32	fill in the blank 5a0c8f014ff9057_33
Excess (deficiency)	$fill in the blank 5a0c8f014ff9057_34	$fill in the blank 5a0c8f014ff9057_35	$fill in the blank 5a0c8f014ff9057_36

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2. The budget indicates that the minimum cash balance

willwill not

be maintained in July. This situation can be corrected by

investingborrowing

and/or by the

purchasesale

of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will

exceedbe short of

the minimum desired balance.