You have been asked to prepare a December cash budget for Ashton Company, a dist

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 $41,200. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 75,400 82,400 $ 97,200 490,000 544,000 $ 629,000 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 $366,000 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 $183,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $472,000 for December. Of this amount, $60,000 is for depreciation. e. A new web server for the Marketing Department costing $96,000 will be purchased for cash during December, and dividends totaling $11,500 l 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

Explanation / Answer

Req 1: Cash Collections for Ddecember: Cash sales of December: 97200 Credit sales of October (490000*18%) 88200 Credit sales of November (544000*60%) 326400 Credit sales of December (629000*20%) 125800 Total cash collections 637600 Req 2: Cash disbursement: Accounts payable in Nov end 183000 Purchase of December (366000*30%) 109800 Total Cash disbursals 292800 Req 3: Cash budget: Beginning Cash Balance 41,200 Add: Collections from customer 637,600 Total cash available 678,800 Less: Cash disbursemen payment off suppliers 292800 Selling and admin expense 412000 New web server 96000 Dividend paid 11500 Total cash disbursement 812300 excess/(Defficiency) -133,500 Financing: Borrowings 153500 Repayment 0 Interest 0 Total Financing 153500 Ending cash balance 20000

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