Use this information to prepare a cash budget for the months of February and Mar

Question

Use this information to prepare a cash budget for the months of February and March The Cambridge Company has budgeted sales revenues as follows Jan $45,000 27,000 Mar $27,000 58,500 $36,000 Credit sales Cash sales Total sales 76,500 72,000 $112,500 $85,500 Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $97,500 in January, $67,500 in February, and $31,500 in March. Other budgeted cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements: (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February 1.

Explanation / Answer

EXPECTED CASH COLLECTIONS FEB MARCH jan month sales 180,000 Feb sales month 21,600 14400 March sales month 16200 Feb cash sales 76500 March cash sales 58500 Total Cash Collections 278,100 89,100 EXPECTED CASH PAYMENTS Feb March jan Purchasse 58,500 Feb month purchase 27000 40500 March month purchases 12600 Total Cash disbursement 85,500 53,100 CASH BUDGET Feb March TOTAL Beginning Balance 15,000 168,750 15,000 Add: Receipt Cash Collections-as computed above 278,100 89,100 367,200 Sale of plant 18525 18525 Common Stock issue 25275 25,275 Total Cash available 311,625 283,125 426,000 Payments: Cash disbursement-as computed above 85,500 53,100 138,600 Operating expense 10,125 10,125 20,250 Selling and admin 18,750 18750 37,500 Dividend paid 28500 28,500 Equipment purchase 9000 9,000 Total Payments made 142,875 90,975 233,850 Net Balance 168,750 192,150 192,150 Add: Borrowings 0 Less: Repayment of principal 0 Less: Repayment of Interest 0 Ending Balance of cash 168,750 192,150 192,150

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