prepare the cash budget for October, November, and December, and for the quarter in total thank you!
Fantastic news! We've Found the answer you've been seeking!
Question:
prepare the cash budget for October, November, and December, and for the quarter in total
thank you!
Transcribed Image Text:
The company generally borrows money during this quarter to support peak sales. The above cash budget was based on assembling the following data: a. Budgeted monthly income statements for October-January are: October November December January Sales $300,000 $450,000 $250,000 $200,000 Cost of goods sold 210,000 315,000 175,000 140,000 Gross margin 90,000 135,000 75,000 60,000 Operating expenses: Marketing expense 39,500 60,000 31,000 25,500 Administrative expense* 22,500 26,000 20,500 19,000 Total operating expenses 62,000 86,000 51,500 44,500 Net operating income $ 28,000 $ 49,000 $ 23,500 $ 15,500 *Includes $10,000 of depreciation each month. b. Each month, 20 percent of sales are for cash and 80 percent are on credit. The collection pattern for credit sales is 10 percent collected in the month of sale, 70 percent in the first month following the month of sale, and 20 percent in the second month following the month of sale. August's sales totaled $100,000, and September's sales totaled $150,000. c. Inventory purchases are on account. Of those purchases, 50 percent are paid in the month of purchase. The remaining 50 percent is paid in the following month. Accounts payable at September 30 for inventory purchases during September total $63,000. d. The merchandise inventory on October 1 is $42,000. The desired ending inventory for each month is 20 percent of the cost of the merchandise to be sold the next month. e. Dividends of $24,500 will be declared and paid in October. f. Land costing $8,000 will be purchased for cash in November. g. The cash balance on October 1 is $26,000. The company wants to have an ending cash balance of at least $20,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in increments of $500 at the beginning of each month. The interest rate on these loans is 1 percent per month (simple interestthat is, assume no compounding). The company would, as possible given minimum requirement, repay the loan plus accumulated interest at the end of the quarter. Colorado Adventures' president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: a. Credit sales still account for 80 percent of total sales. However, the collection period for October, November, and December credit sales is 32 percent collected in the month of sale, 55 percent collected in the month following sale, and 13 percent in the second month following sale. (Any credit sales from August and September collected during the fourth quarter use the collection percentages noted originally in the previous section.) b. The company maintains its ending inventory levels for October, November, and December at 16 percent of the cost of merchandise to be sold in the following month. (The merchandise inventory at October 1 remains $42,000 and accounts payable for inventory purchases at September 30 remains $63,000 as noted originally in the previous section.) In addition, the president is considering increasing dividends declared and paid in October by 45% and wants this reflected on the revised cash budget. Finally, due to inflation concerns, the president is considering increasing the minimum required cash balance to $26,000. Further, there is the possibility that interest rates will increase. Therefore, she wants the impact of a 1.2 percent monthly interest rate on loans also reflected on the cash budget. The company generally borrows money during this quarter to support peak sales. The above cash budget was based on assembling the following data: a. Budgeted monthly income statements for October-January are: October November December January Sales $300,000 $450,000 $250,000 $200,000 Cost of goods sold 210,000 315,000 175,000 140,000 Gross margin 90,000 135,000 75,000 60,000 Operating expenses: Marketing expense 39,500 60,000 31,000 25,500 Administrative expense* 22,500 26,000 20,500 19,000 Total operating expenses 62,000 86,000 51,500 44,500 Net operating income $ 28,000 $ 49,000 $ 23,500 $ 15,500 *Includes $10,000 of depreciation each month. b. Each month, 20 percent of sales are for cash and 80 percent are on credit. The collection pattern for credit sales is 10 percent collected in the month of sale, 70 percent in the first month following the month of sale, and 20 percent in the second month following the month of sale. August's sales totaled $100,000, and September's sales totaled $150,000. c. Inventory purchases are on account. Of those purchases, 50 percent are paid in the month of purchase. The remaining 50 percent is paid in the following month. Accounts payable at September 30 for inventory purchases during September total $63,000. d. The merchandise inventory on October 1 is $42,000. The desired ending inventory for each month is 20 percent of the cost of the merchandise to be sold the next month. e. Dividends of $24,500 will be declared and paid in October. f. Land costing $8,000 will be purchased for cash in November. g. The cash balance on October 1 is $26,000. The company wants to have an ending cash balance of at least $20,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in increments of $500 at the beginning of each month. The interest rate on these loans is 1 percent per month (simple interestthat is, assume no compounding). The company would, as possible given minimum requirement, repay the loan plus accumulated interest at the end of the quarter. Colorado Adventures' president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: a. Credit sales still account for 80 percent of total sales. However, the collection period for October, November, and December credit sales is 32 percent collected in the month of sale, 55 percent collected in the month following sale, and 13 percent in the second month following sale. (Any credit sales from August and September collected during the fourth quarter use the collection percentages noted originally in the previous section.) b. The company maintains its ending inventory levels for October, November, and December at 16 percent of the cost of merchandise to be sold in the following month. (The merchandise inventory at October 1 remains $42,000 and accounts payable for inventory purchases at September 30 remains $63,000 as noted originally in the previous section.) In addition, the president is considering increasing dividends declared and paid in October by 45% and wants this reflected on the revised cash budget. Finally, due to inflation concerns, the president is considering increasing the minimum required cash balance to $26,000. Further, there is the possibility that interest rates will increase. Therefore, she wants the impact of a 1.2 percent monthly interest rate on loans also reflected on the cash budget.
Expert Answer:
Answer rating: 100% (QA)
Here is the cash budget for October November and December and the quarter in total based on the prov... View the full answer
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
Posted Date:
Students also viewed these accounting questions
-
Consider the following information: Rate of Return if State Occurs State of Economy Boom :57 Bust of Economy .66 .34 Probability of State Stock A .09 .13 Stock B Stock C .03 .19 .24 -.04 a. What is...
-
The nominal yield on 6 - month T - bills is 7 % , while default - free Japanese bonds that mature in 6 months have a nominal rate of 4 % . In the spot exchange market, 1 yen equals $ 0 . 0 1 . If...
-
A company just paid an annual dividend of $0.35 per share. Dividends are forecasted to grow at a rate of 25 percent a year for the next 4 years and then go to a growth rate of 9 percent a year,...
-
International Microcircuits, Inc. Megan Bedding, vice-president of sales for International Microcircuits, Inc. (IM), was delighted when IM was one of the few firms invited to enter a bid to supply a...
-
Given the following estimated linear model y` = 10 - 2x1 14x2 + 6x3 a. What is the change in yn when x1 increases by 4? b. What is the change in yn when x3 decreases by 1? c. What is the change in...
-
How important do you feel being adept at adapting is for business firms? Explain.
-
Use the information in the adjusted trial balance reported in Exercise 14-1 to compute the current ratio as of the balance sheet date. Interpret the current ratio for Jones Trucking Company. Assume...
-
In 1969 a deed for land in Pitt County was executed and delivered by Joel and Louisa Tyson unto M. H. Jackson and wife Maggie Jackson, for and during the term of their natural lives and after their...
-
t he proportion of customers who are satisfied in a survey of 400 customers at XYC Inc. is 0.24. 1.Test the hypothesis that the population proportion of customers who are completely satisfied is...
-
Produce a strategic policy document that indicates how the acquired company can implement a management accounting system that will demonstrate compliance with the relevant UNs SGDs. You should also...
-
.Which of the following is false regarding the Sarbanes-Oxley act? a. It requires that external auditors report to the company president. b. It applies to publicly traded companies. C. It requires...
-
What is a protective order? Why is it important to move for a protective order as quickly as possible?
-
Identify at least three grounds a party may have for objecting to interrogatories.
-
What type of documents can be obtained through document requests?
-
How to draft the different forms of written discovery?
-
Q.4 For a compound differential manometer in fig given below calculate (PA-PB)? Water Oil (sg = 0.90) 6 in TA 8 in 10 in 6 in 6 in Mercury (sg = 13.54)
-
Use multiplication or division of power series to find the first three nonzero terms in the Maclaurin series for each function. y = e x2 cos x
-
Describe five ways of placing a monetary value on the investment base in arriving at a measure of invested capital.
-
One division in a decentralized company sometimes sells goods or services to another division in the same company. What are the advantages of this practice? the disadvantages?
-
What is meant by "economic value added"?
Study smarter with the SolutionInn App