Question

You are provided with the following information taken from Items Inc.’s May 31, 2014, balance sheet.
Cash ..................... $19,000
Accounts receivable.............. 47,600
Inventory.................... 21,000
Property, plant, and equipment, net of depreciation... 70,400
Accounts payable............... 18,200
Common stock................ 110,000
Retained earnings............... 21,800

Additional information concerning Items Inc. is as follows.
1. Gross profit is 40% of sales.
2. Actual and budgeted sales data:
May (actual) $68,000
June (budgeted) 60,000

3. Sales are both cash and credit. Cash collections expected in June are:


4. Half of a month’s purchases are paid for in the month of purchase and half in the following month. Cash disbursements expected in June are:
Purchases May $18,200
Purchases June 27,500
$45,700

5. Cash operating costs are anticipated to be $21,300 for the month of June.
6. Equipment costing $6,000 will be purchased for cash in June.
7. The company wishes to maintain a minimum cash balance of $11,000. An open line of credit is available at the bank. All borrowing is done at the beginning of the month, and all repayments are made at the end of the month. The interest rate is 9% per year, and interest expense is accrued at the end of the month and paid in the following month.

Instructions
Prepare a cash budget for the month of June. Determine how much cash Items Inc. must borrow, or can repay, inJune.


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  • CreatedApril 07, 2014
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