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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 company’s operations: The cash balance on December 1 is $40,000.Actual sales for October and November and expected sales for December are as follows:  OctoberNovemberDecemberCash sales$65,000$70,000$83,000Sales on account$400,000$525,000$600,000  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.Purchases of inventory will total $280,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $161,000, all of which will be paid in December.Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 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 company’s bank to increase its cash balance as needed. Required:1. Calculate the expected cash collections for December.2. Calculate the 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.

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 company’s operations:

 

  1. The cash balance on December 1 is $40,000.

  2. Actual sales for October and November and expected sales for December are as follows:

 

  October November December
Cash sales $ 65,000 $ 70,000 $ 83,000
Sales on account $ 400,000 $ 525,000 $ 600,000
 

 

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.

  1. Purchases of inventory will total $280,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $161,000, all of which will be paid in December.

  2. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.

  3. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month.

  4. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

 

Required:

1. Calculate the expected cash collections for December.

2. Calculate the 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.

check_circleAnswer
Step 1

1. The cash collections in December is as follows

Cash Collection$Explanations
December Cash sales83,000 
Cash from October Credit Sales72000400000*18%
Cash from November Credit Sales315000525000*60%
Cash from December credit Sales120000600000*20%
Total Cash collection590,000 
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Step 2

2. Cash disbursal for merchandise purchase

 $Explanation
Cash for November purchases161000 
Cash for December purchases84,000=280000*30%
   
Total245,000 
Step 3

3.Since, depreciation is a non-case expense, it has been excluded from selling and distribution

Cash budget for December $

Opening Cash40,000
Add Cash collections 590,000
Add. Loan from banks(balancing figure)100,000
Less 
Cash disbursal for merchadise purchase-245,000
Selling and Administartive expense-380,000
Investiment in web server-76,000
Dividends paid-9000
Clsoing Balance 20,000
...
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