The Gannon Company has budgeted sales revenues as follows: Past experience indicates that 60% of the credit

The Gannon Company has budgeted sales revenues as follows: 

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 .. $60,000 
July .... 50,000 
August .. 21,000

Other cash disbursements budgeted:
(a) Selling and administrative expenses of $9,500 each month,
(b) Dividends of $22,700 will be paid in July, and
(c) Purchase of a computer in August for $5,000 cash.

The company MUST maintain a minimum cash balance of $10,000 at the end of each month.
The company borrows money from the bank at 9% per year interest if necessary to maintain the minimum cash balance of $10,000. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000 of which none is borrowed.

Instructions: 
Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases ofinventory.

Transcribed Image Text:

June Julv Credit sales Cash sales Total sales August S27,000 S29,000 S18,000 39.000 45000 $80.000 57.000 1000 100 39000 1.000