Colorado Adventures, Inc., sells snowsport equipment. Maya Grenier is the controller for Colorado Adventures and put together the below initial cash budget for the fourth quarter of the year. Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Marketing expenses Administrative expenses over disbursements Land purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available Financing: Colorado Adventures, Inc. Cash Budget For the Quarter Ended December 31 Borrowings Repayments Interest Total financing Ending cash balance October $ 26,000 184,000 210,000 178,500 39,500 12,500 24,500 255,000 (45,000) 65,000 0 65.000 $ 20,000 November $ 20,000 318,000 338,000 259,000 60,000 16,000 8,000 343,000 (5,000) 25,000 0 0 25,000 $ 20,000 I December $ 20,000 370.000 390.000 227,500 31,000 10,500 269,000 121,000 (90,000) (2,450) (92,450) $ 28,550 Quarter $ 26,000 872,000 898.000 665,000 130,500 39,000 8,000 24,500 867,000 31,000 90,000 (90,000) (2,450) (2,450) $28,550 The company generally borrows money during this quarter to support peak sales. The above cash budget was based on assembling the following data: a. Budgeted monthly income statements for October-January are: Sales Cost of goods sold Gross margin Operating expenses: Marketing expense Administrative expense* Total operating expenses Net operating income October $ 300,000 210,000 90,000 November December January $450,000 $250,000 $200,000 175,000 315,000 140,000 135,000 75,000 60,000 39,500 60,000 25,500 22,500 26,000 19,000 62,000 86,000 44,500 $ 28,000 $ 49,000 $ 23,500 $ 15,500 31,000 20,500 51,500 *Includes $10,000 of depreciation each month. b. Each month, 20 percent of sales are for cash and 80 percent are on credit. The collection pattern for credit sales is 10 percent collected in the month of sale, 70 percent in the first month following the month of sale, and 20 percent in the second month following the month of sale. August's sales totaled $100,000, and September's sales totaled $150,000. c. Inventory purchases are on account. Of those purchases, 50 percent are paid in the month of purchase. The remaining 50 percent is paid in the following month. Accounts payable at September 30 for inventory purchases during September total $63,000. d. The merchandise inventory on October 1 is $42,000. The desired ending inventory for each month is 20 percent of the cost of the merchandise to be sold the next month. c. Dividends of $24,500 will be declared and paid in October. f. Land costing $8,000 will be purchased for cash in November. g. The cash balance on October 1 is $26,000. The company wants to have an ending cash balance of at least $20,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in increments of $500 at the beginning of each month. The interest rate on these loans is 1 percent per month (simple interest that is, assume no compounding). The company would, as possible given minimum requirement, repay the loan plus accumulated interest at the end of the quarter. Colorado Adventure's president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: a. Credit sales still account for 80 percent of total sales. However, the collection period for Colorado Adventure's president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: a. Credit sales still account for 80 percent of total sales. However, the collection period for October, November, and December credit sales is 30 percent collected in the month of sale, 60 percent collected in the month following sale, and 10 percent in the second month following sale. (Any credit sales from August and September collected during the fourth quarter use the collection percentages noted originally in the previous section.) b. The company maintains its ending inventory levels for October, November, and December at 12 percent of the cost of merchandise to be sold in the following month. (The merchandise inventory at October I remains $42,000 and accounts payable for inventory purchases at September 30 remains $63,000 as noted originally in the previous section.) In addition, the president is considering increasing dividends declared and paid in October by 50% and wants this reflected on the revised cash budget. I Required: Your group members are part of the Controller's office. Using the new assumptions, Maya has asked you to prepare the below. Prepare these items using the Excel spreadsheet provided as part of the assignment. For the budgets, your task is to enter formulas (cell references) to calculate required numbers ("Requirements 1-4" worksheet). For the cash budget financing section only, if there are any borrowings, repayments, and/or interest, type out supporting calculations in the related section noted at the bottom of the worksheet, putting the final number in its own cell. Then, reference the cell in the cash budget financing section. If the item is zero, leave the space blank. Do NOT modify the spreadsheet format (for example, do not add rows or columns, change spacing or margins, change provided data, etc...). 1. Prepare the schedule of expected cash collections for October, November, and December and for the quarter in total. 2. Prepare the merchandise purchases budget for October, November, and December and for the . Prepare the schedule of expected cash collections for October, November, and December and for the quarter in total. 2. Prepare the merchandise purchases budget for October, November, and December and for the quarter in total. 3. Prepare the schedule of expected cash disbursements for merchandise purchases for October, November, and December and for the quarter in total. 4. Prepare the cash budget for October, November, and December, and for the quarter in total. 5. Compare the original cash budget to your revised cash budget. To better prepare Maya for her meeting with the president, discuss (explain) how the revised collection and inventory assumptions affect the cash budget. That is, not only note the changes but also discuss why changes in accounts receivables collections and inventory levels have an impact. Type in your response on the "Requirement 5" worksheet.