Ce,n has burn Credit sales Cash sales Total sales 135,000 125,000 $380.00 90,000
ID: 2413292 • Letter: C
Question
Ce,n has burn Credit sales Cash sales Total sales 135,000 125,000 $380.00 90,000 225.000 285.000 past experience n kat s that 60% of the creda sales wil be colech dinthe month of sale and the remaining 40% wil be colected hte klo ing month Pachases of m and 50% is paid in the month of purchase and 50% n the month foloving purchase Eludgeted iwentory purchases are ny nalo ndi June July August 300,000 240000 105,000 Other cash disbursements budgeted 30,000 cash (a) seling and administraive expenses et S48 000 each month, db) divi na dS103COO wil be Peth Aly and (c) Pr hae?qu i, h A gut tr The company wishes to maintain a "inimum cash balance of $50.000 at the end of each month The company borrows money bonte bank at 6% interest i' necessary to maintain the main um ? h balance Borrowed money s repa din months when there is an excess cash balance The beg ning cash balance on July 1 was$50,000 Assu e that bomo ed mor y this case b for month Instructions: Present the analysis in a table Prepare a cash budget for the months of July and August Prepare separate schedules for expected collections fromcseand expected payments for purchases of inventoryExplanation / Answer
Solution:
CRUISES, INC.
Cash Budget
For the Two Months of July and August
Particulars
July ($)
August ($)
Beginning cash balance
$ 50,000
$ 50,000***
Add: Cash Receipts
Collections from customers
129,000
104,000
Cash sales
255,000
195,000
Total receipts
384,000
299,000
Total available cash (Total receipts + Beginning cash balance)
434,000
349,000
Less: Disbursements
Purchases
270,000
172,500
Selling and administrative expenses
48,000
48,000
Dividends
103,000
-
Equipment purchase
-
30,000
Total disbursements
421,000
250,500
Excess (deficiency) of available cash over disbursements (Total available cash – Total disbursement)
13,000
98,500
Financing
Borrowings
37,000*
Repayments
(37,185)**
Ending cash balance
$ 50,000
$ 61,315
*As the company wishes to maintain minimum cash balance of $ 50,000 at the end of each month, July end is having $ 13,000 cash balance. So, $ 37,000 will be borrowed to make it $ 50,000.
**Given that borrowed money is repaid in months when there is an excess cash balance. Along with the interest of 6%. As, August is having cash balance of $ 98,500 which is excess of $ 50,000. So, borrowed amount will be repaid in August along with interest.
=Borrowed amount + Interest
=$37,000 + $37,000 × 6% × 1/12
= $37,000 + $185 = $37,185
***Ending cash balance of July will be the beginning cash balance of August.
Schedule of Expected Collections from Customers
Particulars
July ($)
August ($)
Credit sales
June (135,000)
$ 54,000 (WN 1)
July ($125,000)
75,000 (WN 1)
$ 50,000 (WN 2)
August ($90,000)
54,000 (WN 2)
Total collections
$129,000
$104,000
Working Notes (WN): Given that 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.
1. July expected collection from customer:
From June credit sales = $ 135,000 X 40% = $ 54,000
From July credit sales = $ 125,000 X 60% = $ 75,000
2. August expected collection from customer:
From July credit sales = $ 125,000 X 40% = $ 50,000
From August credit sales = $ 90,000 X 60% = $ 54,000
Schedule of Expected Payments for purchases of inventory
Particulars
July ($)
August ($)
Inventory purchases
June ($300,000)
$150,000 (WN 1)
July ($240,000)
120,000 (WN 1)
$120,000 (WN 2)
August ($105,000)
52,500 (WN 2)
Total payments
$270,000
$172,500
Working Notes (WN): Given that Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase.
1. July expected payment for purchases of inventory:
From June credit purchase = $ 300,000 X 50% = $ 150,000
From July credit purchase = $ 240,000 X 50% = $ 120,000
2. August expected payment for purchases of inventory:
From July credit purchase = $ 240,000 X 50% = $ 120,000
From August credit purchase = $ 105,000 X 50% = $ 52,500
CRUISES, INC.
Cash Budget
For the Two Months of July and August
Particulars
July ($)
August ($)
Beginning cash balance
$ 50,000
$ 50,000***
Add: Cash Receipts
Collections from customers
129,000
104,000
Cash sales
255,000
195,000
Total receipts
384,000
299,000
Total available cash (Total receipts + Beginning cash balance)
434,000
349,000
Less: Disbursements
Purchases
270,000
172,500
Selling and administrative expenses
48,000
48,000
Dividends
103,000
-
Equipment purchase
-
30,000
Total disbursements
421,000
250,500
Excess (deficiency) of available cash over disbursements (Total available cash – Total disbursement)
13,000
98,500
Financing
Borrowings
37,000*
Repayments
(37,185)**
Ending cash balance
$ 50,000
$ 61,315
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