Accounting for Business Decision Making Assignment 12 Task 03 Cash Budget

Accounting for business decision making assignment 12

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Accounting for Business Decision Making Assignment 12 Task 03: Cash Budget Natural Care Corp., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a $60,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because Natural Care has experienced difficulty in paying off its loans in the past, the bank’s loan officer has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled: a. On July 1, the beginning of the third quarter, the company will have a cash balance of $43,000. b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual) . . . . . . . . . . . . . . . . . . . . . . . . . $360,000 June (actual) . . . . . . . . . . . . . . . . . . . . . . . . . $280,000 July (budgeted) . . . . . . . . . . . . . . . . . . . . . . . $350,000 August (budgeted) . . . . . . . . . . . . . . . . . . . . $420,000 September (budgeted) . . . . . . . . . . . . . . . . . $360,000 Past experience shows that 25% of a month’s sales are collected in the month of sale, 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible. c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: July August September Merchandise purchases . . . . . . . . . . $170,000 $155,000 $165,000 Salaries and wages . . . . . . . . . . . . . . . $70,000 $70,000 $65,000 Advertising . . . . . . . . . . . . . . . . . . . . . . $80,000 $90,000 $100,000 Rent payments . . . . . . . . . . . . . . . . . . . $30,000 $30,000 $30,000 Depreciation . . . . . . . . . . . . . . . . . . . . . $40,000 $40,000 $40,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $160,000. d. Equipment costing $25,000 will be purchased for cash during July. e. In preparing the cash budget, assume that the $60,000 loan will be made in July and repaid in September. Interest on the loan will total $2,000. Required:
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Accounting for Business Decision Making Assignment 13 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. 2. Prepare a cash budget, by month and in total, for the third quarter. 3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned? Explain. Answer: $ $
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Accounting for Business Decision Making Assignment 14 $420,000 X 70% $ 294,000.00 $ 294,000.00 September sales $360,000 X 25% $ 90,000.00 $ 90,000.00 Total cash collections $ 290,700.00 $ 355,600.00 $ 391,000.00 $ 1,037,300.00 2. Prepare the cash budget, by month and in total and for the third quarter: July August September Quarter Beginning cash balance $ 43,000 $ 28,700 $ 24,300 $ 43,000 Add: cash collections $ 290,700 $ 355,600 $ 391,000 $ 1,037,300 Total cash available $ 333,700 $ 384,300 $ 415,300 $ 1,080,300 Less disbursements: Merchandise purchases $ 160,000 $ 170,000 $ 155,000 $ 485,000 Salaries and wages $ 70,000 $ 70,000 $ 65,000 $ 205,000 Advertising $ 80,000 $ 90,000 $ 100,000 $ 270,000 Rent payments $ 30,000 $ 30,000 $ 30,000 $ 90,000 Equipment purchases $ 25,000 - - $ 25,000 Total disbursements $ 365,000 $ 360,000 $ 350,000 $ 1,075,000 Excess (31,000) $ 24,300 $ 65,300 $ 5,300 Financing:
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Accounting for Business Decision Making Assignment 15 Borrowings $ 60,000 - - $ 60,000 Repayments (60,000) (60,000) Interest (2,000) (2,000) Total financing $ 60,000 (62,000) (2,000) Ending cash balance $ 28,700 $ 24,300 $ 3,300 $ 3,300 3. Based on the data as table above, the loan can be repaid in full in case the
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