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: The cash balance on December 1 is $58,600. Actual sales for October and November and expected sales for December are as follows: October November December Cash sales $ 73,200 $ 78,000 $ 92,000 Sales on account $ 485,000 $ 568,000 $ 663,000 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. Purchases of inventory will total $316,000 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 $162,000, all of which will be paid in December. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month. 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.

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 $58,600 b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 73,200 78,000 92,000 $485, 000 $568,000 663,000 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 $316,000 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 $162,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation. e. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 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

Ashton Company Schedule of Expected Collection Months December Credit Sales 663000 Cash Sales 92000 Credit Sales Collection: In the Month(20%) 132600 (663000*20%) In the Following Month(60%) 340800 (568000*60%) In the Following Second Month(18%) 87300 (485000*18%) Total Collections 1315700 Purchases 316000 Ashton Company Schedule of Expected Payments Months December In the Month(30%) 94800 (316000*30%) Last Month 162000 Total 256800 Ashton Company Cash Budget Months December Beginning Cash 58600 Given Add: Collections 1315700 (Taken from Above) Total Cash Available 1374300 Less: Cash Payments: Payment to Supplier 256800 (Taken from Above) S&A Ex 462000 Only Cash Ex New Web Server 117500 From Notes Dividend 12500 From Notes Total Cash Disbursements 848800 Increase/Decrease in Cash 525500 Financing: Borrowings Repayments Interest on Loan Total Financing 0 Closing Cash 525500

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