The accountant for Solomon’s Dress Shop prepared the following cash budget. Solo

Question

The accountant for Solomon’s Dress Shop prepared the following cash budget. Solomon’s desires to maintain a cash cushion of $18,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 1 percent per month.

Determine the amount of net cash flows from operating activities Solomon’s will report on the third quarter pro forma statement of cash flows.

Determine the amount of net cash flows from financing activities Solomon’s will report on the third quarter pro forma statement of cash flows

cash budget:

Cash Budget July August September Section 1: Cash receipts Beginning cash balance $49,500 $18,000selected answer correct $18,000selected answer correct Add cash receipts 194,000 214,000 254,600 Total cash available 243,500 232,000selected answer correct 272,600selected answer correct Section 2: Cash payments For inventory purchases 172,526 147,230 181,152 For S&A expenses 61,500 67,560 68,432 For interest expense 0 85selected answer correct 94selected answer correct Total budgeted disbursements 234,026 214,875selected answer correct 249,678selected answer correct Section 3: Financing activities Surplus (shortage) 9,474 17,125selected answer correct 22,922selected answer correct Borrowing (repayments) 8,526 875selected answer correct (4,922)selected answer correct Ending cash balance $18,000 $18,000 $18,000

Explanation / Answer

Solution:

Net cash Flows from Operating Activities = Total Cash Receipts - Total Disbursement

= ($194000 +$214000+ $254600) - ($234026 + $214875 +$249678) = - $35,979

Net cash Flow from Financing Activities = Amounts Borrowed - Repayment of borrowings = ($8526 +$875) - $4922 = $4,479

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