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: a. The cash balance on December 1 is $40,000. b. 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 $ 65,000 $ 70,000 $ 83,000 Sales on account $ 400,000 $525,000 $600,000 c. 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. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation. e. Page 366A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totalling $9,000 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 company’s 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.

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: a. The cash balance on December 1 is $40,000. b. 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 $ 65,000 $ 70,000 $ 83,000 Sales on account $ 400,000 $525,000 $600,000 c. 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. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation. e. Page 366A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totalling $9,000 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 company’s 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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 4P

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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:

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

b. 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

$ 65,000

$ 70,000

$ 83,000

Sales on account

$ 400,000

$525,000

$600,000

c. 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.

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

e. Page 366A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totalling $9,000 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 company’s 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.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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