cornerstones 3rd eddition by Hansen, Don R problem #1 The city of Charleston had
ID: 2462077 • Letter: C
Question
cornerstones 3rd eddition by Hansen, Don R
problem #1
The city of Charleston had the following sales of water for the selected months of 2016:
Month Sales
February $50,000
March 45,000
April 60,000
May 42,500
June 70,000
July 120,000
All sales on credit. Historically, 50 percent is collected in the month of sale, 35 percent during the first month
following the sale, and 15 percent in the second month following the sale.
Cost of water averages 75 percent of sales. Water is purchased in the month of sale. All purchases are paid during the month following the purchase.
Operating costs of $10,000 are paid each month.
The April 1 cash balance is expected to be the minimum balance of $5,000.
Money can be borrowed from a local bank in increments of $1,000 (Do not include interest charges in you budget.)
Required:
Prepare a cash budget for April and May.
thank you in advance for your help.
Explanation / Answer
Cash budget
April
May
Opening balance
$5,000
$14,500
Add: Cash collection
53,250
49,000
Total collection
58,250
63,500
Disbursements
Water purchase
33,750
45,000
Operating costs
10,000
10,000
Total disbursements
$43,750
$55,000
Excess
14,500
8,500
Ending balance
14,500
8,500
Cash collections
April
May
Feb 50,000 @15%
7,500
March 45,000@35%; 15%
15,750
6,750
April 60,000@50% ; 35%
30,000
21,000
May 42,500 @50%
21,250
Total
$53,250
$49,000
Cash payment
April
May
45000@75%=33,750
60,000@75% = 45,000
April
May
Opening balance
$5,000
$14,500
Add: Cash collection
53,250
49,000
Total collection
58,250
63,500
Disbursements
Water purchase
33,750
45,000
Operating costs
10,000
10,000
Total disbursements
$43,750
$55,000
Excess
14,500
8,500
Ending balance
14,500
8,500
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