Question
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the companys operations: |
a. | The cash balance on December 1 is $41,600. |
b. | Actual sales for October and November and expected sales for December are as follows: |
October | November | December | ||||
Cash sales | $ | 81,200 | $ | 72,000 | $ | 96,200 |
Sales on account | 495,000 | 512,000 | 684,000 | |||
Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. | |
c. | Purchases of inventory will total $285,000 for December. Thirty percent of a months inventory purchases are paid during the month of purchase. The accounts payable remaining from Novembers inventory purchases total $185,000, all of which will be paid in December. |
d. | Selling and administrative expenses are budgeted at $455,000 for December. Of this amount, $89,600 is for depreciation. |
e. | A new web server for the Marketing Department costing $79,000 will be purchased for cash during December, and dividends totaling $10,000 will be paid during the month. |
f. | The company maintains a minimum cash balance of $20,000. An open line of credit is available from the companys bank to bolster the cash position as needed. |
Required: | |
1. | Prepare a schedule of expected cash collections for December. |
2. | Prepare a schedule of expected cash disbursements for merchandise purchases for December. |
3. | Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month. |
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