Use this information to prepare a cash budget for the months of February and Mar

Question

Use this information to prepare a cash budget for the months of February and March

The Cambridge Company has budgeted sales revenues as follows.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

                                                                                      Jan                     Feb                 Mar

Credit sales                                                            $45,000             $36,000             $27,000

Cash sales                                                                27,000               76,500               58,500

Total sales                                                              $72,000          $112,500             $85,500

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $97,500 in January, $67,500 in February, and $31,500 in March.

Other budgeted cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements:  (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March.

The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available.  Also assume that there is no outstanding financing as of February 1.

Explanation / Answer

CASH BUDGET FEB MARCH OPENING BALANCE 15000 15000 RECEIPTS CREDIT SALES: PREVIOUS MONTH 18000 14400 CURRENT MONTH 21600 16200 CASH SALES 76500 58500 SALE OF PLANT 18525 0 SALE OF STOCK 0 25275 TOTAL RECEIPTS 134625 114375 PAYMENTS INVENTORY PURCHASES PREVIOUS MONTH 58500 40500 CURRENT MONTH 27000 12600 CASH DIS 10125 10125 EXPENSES 18750 18750 DIVIDENDS 28500 0 EQUIPMENT 0 9000 TOTAL PAYMENTS 142875 90975 BALANCE 6750 38400 BANK LOAN 8250 0 REPAYMENT OF LOAN 0 8250 INTEREST PAYMENT 0 165 CLOSING BALANCE 15000 29985

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