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:
The cash balance on December 1 is $51,200.
Actual sales for October and November and expected sales for December are shown below. 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.
October | November | December | |||||||
Cash sales | $ | 74,200 | $ | 79,600 | $ | 83,600 | |||
Sales on account | 455,000 | 550,000 | 673,000 | ||||||
Purchases of inventory will total $346,000 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 $177,000, all of which will be paid in December.
Selling and administrative expenses are budgeted at $473,000 for December. Of this amount, $75,000 is for depreciation.
A new web server for the Marketing Department costing $72,000 will be purchased for cash during December, and dividends totalling $17,500 will be paid during the month.
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 during December for merchandise purchases.
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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started