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Sweeney Co. is preparing a cash budget for the second quarter of the coming year

ID: 2456808 • Letter: S

Question

Sweeney Co. is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: ADDITION AL DATA: Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. Purchases are all on credit, with 40% paid in the month of purchase and the balance paid in the following month. Operating expenses are paid in the month they are incurred. A minimum cash balance of $40,000 is required at the end of each month. Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Prepare the company's cash budget for May. Show the ending loan balance at May 31.

Explanation / Answer

Cash Budget for May

Beginning Cash Balance

$            40,000

Add: Budgeted Collection

$          124,500

Less: Budgeted Payment for Purchases

$       (109,160)

Less: Budgeted Payment for Operating expenses

Payroll

$          (14,280)

Advertising

$            (5,700)

Rent

$            (1,500)

Net cash Available (A)

$            33,860

Borrowings:

Loan beginning balance

$            16,000

Loan Taken (40000-33860)+160

$              6,300

Loan repaid

$                     -  

Interest Paid (16000*1%)

$                (160)

Net borrowings (B)

$              6,140

Cash Ending balance (A+B)

$            40,000

Workings:

Budgeted Collection:

April

May

Total Sales

$         150,000

$          157,500

Cash Sales (40%)

$            60,000

$            63,000

Credit Sales (60%)

$            90,000

$            94,500

Collection :

Cash Sales

$            60,000

$            63,000

Credit Sales :

50% in the month of sale

$            30,000

$            31,500

(60000*50%)

(63000*50%)

50% in the next month

$            30,000

(60000*50%)

Total Collection

$          124,500

Budgeted Payment for Purchases :

April

May

Merchandise Purchases

$         107,000

$          112,400

Payment:

40% in the month of purchase

$            42,800

$            44,960

(107000*40%)

(112400*40%)

60% in the next month

$            64,200

(107000*60%)

Budgeted Payment for Purchases=

$          109,160

Cash Budget for May

Beginning Cash Balance

$            40,000

Add: Budgeted Collection

$          124,500

Less: Budgeted Payment for Purchases

$       (109,160)

Less: Budgeted Payment for Operating expenses

Payroll

$          (14,280)

Advertising

$            (5,700)

Rent

$            (1,500)

Net cash Available (A)

$            33,860

Borrowings:

Loan beginning balance

$            16,000

Loan Taken (40000-33860)+160

$              6,300

Loan repaid

$                     -  

Interest Paid (16000*1%)

$                (160)

Net borrowings (B)

$              6,140

Cash Ending balance (A+B)

$            40,000

Workings:

Budgeted Collection:

April

May

Total Sales

$         150,000

$          157,500

Cash Sales (40%)

$            60,000

$            63,000

Credit Sales (60%)

$            90,000

$            94,500

Collection :

Cash Sales

$            60,000

$            63,000

Credit Sales :

50% in the month of sale

$            30,000

$            31,500

(60000*50%)

(63000*50%)

50% in the next month

$            30,000

(60000*50%)

Total Collection

$          124,500

Budgeted Payment for Purchases :

April

May

Merchandise Purchases

$         107,000

$          112,400

Payment:

40% in the month of purchase

$            42,800

$            44,960

(107000*40%)

(112400*40%)

60% in the next month

$            64,200

(107000*60%)

Budgeted Payment for Purchases=

$          109,160