quarter ending September 30, 2018. Your data collection has yielded the following:     Month Cash Sales Sales On Account Purchases On Account May $50,000 $480,000 $390,000 June $65,000 $600,000 $360,000 July $43,400 $720,000 $450,000 August $52,800 $640,000 $400,000 September $56,750 $800,000 $500,000 An analysis of the records shows that trade receivables (accounts receivable) for sales on account are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90: 50% in the month of sale  35% in the first month following the sale 15% in the second month following the sale Accounts payable are settled as follows, in accordance with the credit terms – 4/30, n60: 70% in the month in which the inventory is purchased  30% in the following month Monthly rental is received from a tenant for storage space rented to him by Classique Household Furnishings & Appliances. The rental is $840,000 per annum and is received quarterly in advance. Rental relating to the quarter under review becomes due on July 1. Computer equipment, which is estimated to cost $350,000, will be acquired for cash in August. The manager has made arrangements with the seller to make a cash deposit of 50% of the amount upon signing of the agreement in August, with the balance to be settled in four equal monthly instalments, starting in September 2018. An investment instrument purchased by the company with a face value of $480,000 will mature on July 20, 2018 and will be liquidated on that date. At the same time, quarterly interest computed at a rate of 8⅓ % per annum will also be collected. Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,920,000 per annum [including depreciation on non-current assets of $42,000 per month] and are settled monthly. Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly. Other operating expenses are expected to be $144,000 per quarter and are settled monthly. In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be $305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in August with the balance settled in two equal amounts in September & October. As part of its investing activities, the management of Classique Household Furnishings & Appliances is in the process of completing a major addition to the business property which is estimated to cost $1,200,000, and which is being funded by external borrowing. $460,000 of the principal, along with interest of $18,000 is due to be paid on July 15, 2018. The cash balance on September 30, 2018 is expected to be an overdraft of $264,000.

Question

Classique Household Furnishings & Appliances is a family-owned furniture store. You are the management accountant of the concern and have been given the task of preparing the cash budget for the business for the quarter ending September 30, 2018. Your data collection has yielded the following:

  •  

 

Month

Cash Sales

Sales On Account

Purchases On Account

May

$50,000

$480,000

$390,000

June

$65,000

$600,000

$360,000

July

$43,400

$720,000

$450,000

August

$52,800

$640,000

$400,000

September

$56,750

$800,000

$500,000

  1. An analysis of the records shows that trade receivables (accounts receivable) for sales on account are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90:

50% in the month of sale 

35% in the first month following the sale 15% in the second month following the sale

  • Accounts payable are settled as follows, in accordance with the credit terms – 4/30, n60:

70% in the month in which the inventory is purchased  30% in the following month

  • Monthly rental is received from a tenant for storage space rented to him by Classique Household Furnishings & Appliances. The rental is $840,000 per annum and is received quarterly in advance. Rental relating to the quarter under review becomes due on July 1.
  • Computer equipment, which is estimated to cost $350,000, will be acquired for cash in August. The manager has made arrangements with the seller to make a cash deposit of 50% of the amount upon signing of the agreement in August, with the balance to be settled in four equal monthly instalments, starting in September 2018.
  • An investment instrument purchased by the company with a face value of $480,000 will mature on July 20, 2018 and will be liquidated on that date. At the same time, quarterly interest computed at a rate of 8⅓ % per annum will also be collected.
  • Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,920,000 per annum [including depreciation on non-current assets of $42,000 per month] and are settled monthly.
  • Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
  • Other operating expenses are expected to be $144,000 per quarter and are settled monthly.
  • In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be $305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in August with the balance settled in two equal amounts in September & October.
  • As part of its investing activities, the management of Classique Household Furnishings & Appliances is in the process of completing a major addition to the business property which is estimated to cost $1,200,000, and which is being funded by external borrowing. $460,000 of the principal, along with interest of $18,000 is due to be paid on July 15, 2018.
  • The cash balance on September 30, 2018 is expected to be an overdraft of $264,000.

 

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