PROBLEM $7-9$

Preparing Merchandise Purchases and Cash Budgets $L{O}_2-CC8,{?}_{\text{I}}^3$

CHECK FIGURE

I. $(2)$October $3$I cash balance: $$40,950$

Elon Co$.\text{'}$s September balance sheet contains the following information:

for more ebook$/$ testbank$/$ solution manuals requests:

Cash

Accounts receivable

Allowance for doubtful accounts $2,800($cr$)$

Merchandise inventory

$$37,500(dr)$

I $26,000(dr)$

$26,250($dr$)$

Management has designated $$37,500$ as the firm's minimum monthly cash balance. Other information about the firm

and its operations is as follows:

I. Sales revenues of $$350,000,$ $$420,000,$ and $$3$I $2,500$ are expected for October, November, and December,

respectively. All goods are sold on account.

The collection pattern for accounts receivable is $60\%$ in the month of sale, $39\%$ in the month following the month

of sale, and $\%$ uncollectible, which is set up as an allowance.

Cost of goods sold is $60\%$ of sales revenues.

Management's target ending balance of merchandise inventory is $o\%$ of the current month's budgeted cost of

goods sold.

All accounts payable for inventory are paid in the month of purchase.

Other monthly expenses are $$49,250,$ which includes $$3,500$ of depreciation and $$2,000$ of bad debt expense.

In the event of a shortfall, the company borrows money. In contrast, in the event of excess cash, the company

invests in short$-$term investments. Borrowings and investments are assumed to be made at the end of a month in

increments of $$6,250.$

Interest on borrowings is io$\%$ per year, payable every quarter, on the accumulated amount of the loan; similarly,

interest earned on investments is $8\%$ per year on the accumulated investments and is received every quarter.

Investments can be matured and the principal amount redeemed in June or December of a year.

Page $324$

Required:

I. Prepare a merchandise purchases budget for October and November.

Prepare the cash budgets for October and November, including the effects of financing $($borrowing or investing$).$

Interest is earned or paid quarterly.

PROBLEM $7-10$

Creating a Schedule of Cash Collections and Disbursements $,$ i $\{$:${?}_3]$