Problem 4-25 Complete cash budget [LO4-2] Harry\'s Carryout Stores has eight loc
ID: 2340511 • Letter: P
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Problem 4-25 Complete cash budget [LO4-2] Harry's Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three- month financial plan for January through March. The following are actual and forecasted sales figures: Actual Forecast Additional Information November $380,000 January$460,000 April forecast 400,000 February 500,000 $430,000 March 440,000 Of the firm's sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 25 percent of sales and are purchased and received each month in an amount sufficient to cover the following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 10 percent of sales and is also paid in the month of sales. Overhead expense is $32,500 in cash per month. Depreciation expense is $10,900 per month. Taxes of $8,900 will be paid in January, and dividends of $6,500 will be paid in March. Cash at the beginning of January is $98,000, and the minimum desired cash balance is $93,000 a. Prepare a schedule of monthly cash receipts for January, February, and March. Harry's Carryout Stores Cash Receipts Schedule December November January February March Sales Credit sales Cash sales One month after sale Two months after sale Total cash receiptsExplanation / Answer
Answer:
1
Harry’s Carryout Stores
Cash Receipts Schedule
November
December
January
February
March
Sales
380,000
400,000
460,000
500,000
440,000
Credit sales
190000
200000
230000
250000
220000
Cash sales
230000
250000
220000
One month after sale
46000
50000
44000
Two months after sale
160000
184000
200000
Total cash receipts
570,000
600,000
1,126,000
1,234,000
1,124,000
2
Harry’s Carryout Stores
Cash Payments Schedule
January
February
March
Payments for purchases
125000
110000
107500
Labor expense
230000
250000
220000
Selling and administrative
46000
50000
44000
Overhead
32500
32500
32500
Taxes
8900
Dividends
6500
Total cash payments
442400
442500
410500
3
Harry’s Carryout Stores
Cash Payments Schedule
January
February
March
Total cash receipts
436,000
484,000
464,000
Total cash payments
442400
442500
410500
Bet cash flow
-6,400
41,500
53,500
Beginning cash balance
98000
93,000
133,100
Cumulative cash balanc
91,600
134,500
186,600
Monthly loan (or repayment)
1,400
-1400
0
Ending cash balance
93,000
133,100
186,600
Cumulative loan balance
1,400
0
0
Explanation to the answer:
A)
Cash sales = .50 × Current sales
Credit sales = .50 × Current sales
Collections one month after sale = .20 × Prior month's sales
Collections two months after sale = .80 × Sales from two months prior
b)
Purchases are made one month prior to sale and paid for one month after purchase.
Payments for purchases = .25 × Current sales.
Labor expense = .50 × Current sales
Selling and administrative expense = .10 × Current sales
Depreciation is omitted because it is an accounting entry and not a payment of cash.
Harry’s Carryout Stores
Cash Receipts Schedule
November
December
January
February
March
Sales
380,000
400,000
460,000
500,000
440,000
Credit sales
190000
200000
230000
250000
220000
Cash sales
230000
250000
220000
One month after sale
46000
50000
44000
Two months after sale
160000
184000
200000
Total cash receipts
570,000
600,000
1,126,000
1,234,000
1,124,000
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