You have been asked to prepare a December cash budget for Ashton Company, a dist
ID: 2398142 • Letter: Y
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 $46,000 b. Actual sales for October and November and expected sales for December are as follows Cash sales Sales on account October November December $ 78, 200 $77,600 $ 95,000 534,000 606,000 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 C. Purchases of inventory will total $352,000 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 $209,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $505,000 for December. Of this amount, $60,700 is for depreciation. e. A new web server for the Marketing Department costing $102,000 will be purchased for cash during December, and dividends totaling $16,500 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 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. Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Calculate the expected cash disbursements for merchandise purchases for December.Explanation / Answer
Solution:
Part 1 – Expected Cash Collections for December
December
Cash Sales of December
$95,000
Plus: Collection from sales on account
20% of December sales on account is collected in Dec (606,000*20%)
$121,200
60% of November Sales on Account is collected in Dec (534,000*60%)
$320,400
18% of October Sales on Account is collected in December (460,000*18%)
$82,800
Expected Cash Collections for December
$619,400
Part 2 --- Expected Cash Disbursements for Merchandise Purchases for December
December
30% of December Inventory Purchases are paid during the month (30%*352,000)
$105,600
Accounts Payable of November paid in December
$209,000
Expected Cash Disbursements for Merchandise Purchases
$314,600
Part 3 --- Cash Budget for December
Cash Budget for December Month
December
Beginning cash balance
$46,000
Add: Receipts
Collection from customers
$619,400
Total cash available
$665,400
Less: Cash disbursements
Merchandise Purchases
$314,600
Selling and Administrative Expense
(excluding non cash item Depreciation) (505,000 - 60,700)
$444,300
New Server Purchase
$102,000
Dividend paid
$16,500
Total Cash disbursements
$877,400
Excess (deficiency) of cash available over disbursements
-$212,000
Financing
Borrowings
$232,000
Repayments
$0
Interest
$0
Total Finiancing
$232,000
Ending Cash Balance
$20,000
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December
Cash Sales of December
$95,000
Plus: Collection from sales on account
20% of December sales on account is collected in Dec (606,000*20%)
$121,200
60% of November Sales on Account is collected in Dec (534,000*60%)
$320,400
18% of October Sales on Account is collected in December (460,000*18%)
$82,800
Expected Cash Collections for December
$619,400
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