Chapter 7 Cash Budgeting Exercise Stimpy Company\'s recent and forecasted sales

Question

Chapter 7 Cash Budgeting Exercise Stimpy Company's recent and forecasted sales for months in year 1 and 2 are: $ 75,000 50,000 50,000 125, 000 July Year 1 August September October November December January Year 2 February $150,000 75,000 90,000 80,000 The balance sheet on September 30 of year 1 shows: Cash Accounts receivable 30,000 Inventory Prepaid insurance Fixtures (net) Accounts payable Dividends payable Rent payable s 70,000 1,500 $ 3,000 1,800 20,000 $129 800 Total 1iabilities 89,000 Stockholder's equity40 800 $129 800 Total Sales are forecasted at an average price that is twice 30 days, but experience has shown that 50% of current sales are collected in the current month, 40% in the next month, and 10% in the month thereafter. Bad debts are negligible. the average cost per unit. All sales are on credit, payable within Ending inventories are supposed to equal 120 percent of the next month's sales in units. Purchases during any given month are paid in full during the following month. Monthly operating expenses are as follows: $38,000 200 Wages Depreciation Miscellaneous Rent 3,000 500 + 10% of sales Cash dividends of $1,500 are to be paid quarterly, beginning October 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $ paid at the beginning of each month, and the additional 10 percent of sales is paid quarterly on the tenth of the mont following the quarter. The next settlement is due October 10 The company desires an ending minimum cash balance of $3,000 each month. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 6% per annum. Management wants to minimize borrowing and repay rapidly. Interest is paid monthly on any outstanding principal during the month. Assume the borrowing takes place at the beginning, and repayments at the end of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar, and ignore income taxes 1. Prepare cash collections schedule for the last quarter of year 1.

Explanation / Answer

Cash Collection Schedule for the last quarter year 1 Amount in $ Particulars October November December Opening Balance(+) 3391.51 3798.91 3798.91 Sales 125000 150000 75000 Sales realisation :- Sales realisation @ 50% (+) 62500 75000 37500 Sales realisation @ 40% (+) 20000 50000 60000 Sales realisation @ 10% (+) 50000 50000 125000 Cash purchases (-) 62500 75000 37500 Purchases part of inventory (120% next month sales) (-) 90000 45000 54000 Wages (-) 38000 38000 38000 Miscellaneous (-) 3000 3000 3000 Fixed Rent (-) 500 500 500 Rent 10% of quarterly sales (-) 17500 Cash Divident (-) 15000 Bank borrowings (+) 95000 Interest on borrowings @ 6% p.a (-) 592.60 512.88 71.34 Repayment of loan (-) 13000 90000 Closing Balance 3798.91 3786.03 3227.57

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