Sales on account are collected over a three-month period as follows: 20% collect

Question

   

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.

Purchases of inventory will total $356,000 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 $164,000, all of which will be paid in December.

  

  

Prepare a schedule of expected cash disbursements for merchandise purchases for December.

  

  

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:

Explanation / Answer

1. The schedule for expected cash collections for the month of dec is as follows:

- Sales of dec 20% of 614000 = 122800

- Sales of Nov 60% of 56200 = 112400

- Sales of Oct 18% of 46500 = 43700

The total cash collections will be 278900$

2. Expected cash disbusements will be

- 30% of dec puchases = 106800

- puchases for nov =164000

- selling and admin exp(exc dep) = 376800

- marketing dept cost = 120500

- dividends = 13500

- cash bal to be maintained= 20000

the total projected exp are 801600

3 The borrowings that will be needed in the month of Dec are 477300

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