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Chapter 22: Q17SE (page 1231)

Preparing a financial budget—cash budget

Wilson Company has \(11,000 in cash on hand on January 1 and has collected the following budget data:

January February Sales \) 1,400,000 \( 710,000 Cash receipts from customers 851,420 871,800 Cash payments for merchandise inventory 561,100 532,310

Assume Wilson has cash payments for selling and administrative expenses including salaries of \)55,000 plus commissions of 2% of sales, all paid in the month of sale. The company requires a minimum cash balance of $8,500. Prepare a cash budget for January and February. Will Wilson need to borrow cash by the end of February?

Short Answer

Expert verified

Answer

The total ending cash balance is $218,320 in the month of January and $488,610 in the month of February.

Step by step solution

01

Preparation of cash budget

Particulars

January

February

Beginning cash balance

$11,000

$218,320

Cash receipts

$851,420

$871,800

Cash available

$862,420

$1,090,120

Cash payments:



Cash payments for merchandise inventory

$561,100

$532,310

Selling and administrative expenses

$55,000

$55,000

Commission

$28,000

$14,200

Total cash payments

$644,100

$601,510

Ending cash balance before financing

$218,320

$488,610

02

Explanation

No, Wilson need not to borrow money by the end of February because it already has sufficient excess cash.

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Most popular questions from this chapter

Connor Company began operations on January 1 and has projected the following selling and administrative expenses:

Rent Expense $ 1,000 per month, paid as incurred

Utilities Expense 500 per month, paid in month after incurred

Depreciation Expense 300 per month

Insurance Expense 100 per month, 6 months prepaid on January 1

Determine the cash payments for selling and administrative expenses for the first three months of operations.

Why is the sales budget considered the cornerstone of the master budget?

What is the capital expenditures budget?

Preparing an operating budget—inventory, purchases, and cost of goods sold budget

Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows:

Quarter Ended Nine-MonthTotal

March 31 June 30 September 30 Cash sales, 20% \( 28,000 \) 38,000 \( 33,000 \) 99,000

Credit sales, 80% 112,000 152,000 132,000 396,000 Total sales \( 140,000 \) 190,000 \( 165,000 \) 495,000

In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below \(5,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of \)240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.

Completing a comprehensive budgeting problem—merchandising company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Alliance Printing Supply’s controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)16,300 budgeted for cash purchase of equipment.

c. April depreciation expense, \(1,000.

d. Cost of goods sold, 40% of sales.

e. Desired ending inventory for April is \)22,400.

f. April selling and administrative expenses include salaries of \(37,000, 30% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)89,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,600.

j. April purchases of inventory, \)8,600 for cash and $37,400 on account. Half the credit purchases will be paid in April and half in May.

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.
See all solutions

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