75 percent of sales are for credit, and collections occur after thirty days. A $
ID: 2374120 • Letter: 7
Question
75 percent of sales are for credit, and collections occur after thirty days.
A $100,000 Treasury bill matures in March.
Monthly fixed disbursements are $13,000.
Variable disbursements are 62 percent of sales and occur one month prior to sales.
A tax payment of $13,500 is due in February.
The initial cash is $20,000.
The minimum required cash balance is $5,000.
Variable cash disbursements for April are $30,000.
Sales
January
0
February
60,000
March
80,000
April
100,000
Construct the firm's cash budget for the given months.
Sales
June
$200,000
July
200,000
August
200,000
September
300,000
October
500,000
November
200,000
Sales
January
0
February
60,000
March
80,000
April
100,000
Explanation / Answer
1) Vicky's Apparel has forecast credit sales for the fourth quarter of the year as: Sept: (actual)----$50,000 Fourth Quarter Oct: ----$40,000 Nov:-----$35,000 Dec:_----$60,000 Experience has shown that 20% of sales receipts are collected in the month of sale, 70% in the following month, and 10% are never collected. Prepare a schedule of cash receipts for Vicky's Apparel covering the 4th quarter (oct-Dec).
2) The Man Company has financial statements as shown below, which are representative of the company's historical average. The firm is expecting a 20% increase in sales next yr, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out w/out any expansion of fixed assests, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly w/ sales. Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (hint: a profit margin and payout ratio must be found from the income statement.) Income Statement: sales---$200,000 Expenses---$158,000 Earnings before interest and taxes---$42,000 Interest---$7,000 Earning before taxes---$35,000 Taxes---$15,000 Earnings after taxes---$20,000 Dividends---$6,000 Balance Sheet Asset Cash----$5,000 inventory---$75,000 Current assets---$120,000 fixed assests---$80,000 total assests---$200,000 Liabilities and Stockholder's Equity Accts payable---$25,000 Accrued wages---$1,000 Accrued taxes---$2,000 Current liabilities---$28,000 Notes payable---$7,000 Long term-debt---$15,000 Common Stock---$120,000 Reatained Earnings---$30,000 Total liabilities and stockholders' equity---$200,000
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