Former Corporation sells office supplies to government agencies. At the beginnin

Question

Former Corporation sells office supplies to government agencies. At the beginning of the current quarter, the company reports the following selected account balances Cash Accounts receivable Current payables $ 10,000 210,000 88,000 Former's management has made the following budget estimates regarding operations for the curremt quarter Sales (estimated) Total costs and expenses (estimated) Debt service payment Tax liability payment (estimated) $500,000 400,000 145,000 45,000 (estimated) Of Former's total costs and expenses, $20,000 is quarterly depreciation expense, and $20,000 represents the expiration of prepayments. The remaining $360,000 is to be financed with current payables. The company's ending prepayments balance is expected to be the same as its beginning prepayments balance. Its ending current payables balance is expected to be $22,000 more than its beginning balance All of Former's sales are on account. Approximately 65 percent of its sales are collected in the quarter in which they are made. The remaining 35 percent are collected in the following quarter. Because all of the company's sales are made to government agencies, it experiences virtually no uncollectible accounts Former's minimum cash balance requirement is $10,000. Should the balance fall below this amount, management negotiates a short-term loan with a local bank. The company's debt ratio (liabilities ÷ assets) is currently 80 percent. Required a. Compute Former's budgeted cash receipts for the quarter. b. Compute Former's payments of current payables budgeted for the quarter. c. Compute Former's cash prepayments budgeted for the quarter d. Prepare Former's cash budget for the quarter.

Explanation / Answer

Q1. Budgeted Cash Receipts for Quarter: Collection of Opening Accounts Receivables $210,000 Credit Sales Collection in Quarter - 75% $325,000 Cash receipts in Quarter $535,000 Q2. Budgeted Cash Payments for Quarter: Opening Current Payables $88,000 Current quarter expenses $360,000 Closing Current Payables ($110,000) Cash Payments in Quarter $338,000 Q3. Cash Prepayment budgerted in Quarter $20,000 (Amounts expiring in current quarter) Q4 Cash Budget in Quarter: Opening Cash $10,000 Cash Collections $535,000 Cash Payments ($338,000) Prepayments ($20,000) Tax Payments ($45,000) Debt Service Payment ($145,000) Short term loan from Bank (Balancing Number) $13,000 Minimum Cash Balance Requirement $10,000

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