You have been asked to prepare a December cash budget for Ashton Company, a dist

Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $55,400 b. Actual sales for October and November and expected sales for December are as follows Cash sales Sales on account October November December $69,400 $ 88,400 $ 96,800 $445,000 $596,000 $625,0ee Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible c. Purchases of inventory will total $340,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $173,500, all of which will be paid in December d. Selling and administrative expenses are budgeted at $510,000 for December. Of this amount, $55,100 is for depreciation e. A new web server for the Marketing Department costing $83,000 will be purchased for cash during December, and dividends totaling $18,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required 1. Calculate the expected cash collections for December 2. Calculate the expected cash disbursements for merchandise purchases for December. 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month

Explanation / Answer

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REQ 1: EXPECTED CASH COLLECTIONS FOR DECEMBER: Cash Sales for December 96800 Sales of October (445000*18%) 80100 sales of November (596000*60%) 357600 Sales of December (625000*20%) 125000 Cash Collections for December month 659500 REQ 2: EXPECTED CASH DISBURSEMENT: Payment for Ddecember purchases(340,000*30%) 102000 Payment for November purchases 173500 Cash disbursement for December month 275500 REQ 3: CASH BUDGET FOR THE MONTH OF DECEMBER: Cash Balance in beginning 55400 Add: Expected Cash collections 659500 Total cash available 714900 Payments: Cash disbursals on purchases 275500 Selling and admin expense 454900 Equipment purchase 83000 Dividend paid 18500 Total Payments: 831900 Cash balance available -117000 Borrowing 137000 Ending balance of cash in December month 20000

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