Exercise 186 (Part Level Submission) (a) (b) Exercise 186 (Part Level Submission
ID: 2577951 • Letter: E
Question
Exercise 186 (Part Level Submission)
(a)
(b)
Exercise 186 (Part Level Submission)
Cruises, Inc. has budgeted sales revenues as follows:June July August Credit sales $135,000 $125,000 $ 90,000 Cash sales 90,000 255,000 195,000 Total sales $225,000 $380,000 $ 285,000
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 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:
June $300,000 July 240,000 August 105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each month, (b) dividends of $103,000 will be paid in July, and (c) purchase of equipment in August for $30,000 cash.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 6% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000. Assume that borrowed money in this case is for one month.
Explanation / Answer
Cash Budget July August Beginning cash balance 50,000 50,000 Add:Receipts Collections from customers 129,000 104,000 cash sales 255,000 195,000 total receipts 434,000 349000 total available cash less:Disbursements purchases 270,000 172,500 selling and administrative expense 48,000 48,000 dividends 103,000 Equipment purchase 30,000 total disbursement 421,000 250,500 Excess(deficiency)of available cash over disbursement 13,000 98,500 Financing: Borrowings 37,000 0 Repayments 0 -37,185 ending cash balance 50,000 61,315 interest (37000*6%*1/12 = 185 Schedule of Expected collection from customers Credit sales July August June 54000 July 75000 50000 August 54000 total collections 129000 104000 Schedule of expected payments for purchase of inventory July August inventory purchases June 150,000 July 120,000 120,000 August 52500 total payments 270,000 172500
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