The company expects to sell about 10% of its merchandise for cash. Of sales on a
ID: 2434892 • Letter: T
Question
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $25,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets as of March 1 include cash of $30,000, marketable securities of $105,000, and accounts receivable of $750,000 ($600,000 from February sales and $150,000 from January sales). Sales on account for January and February were $500,000 and $600,000, respectively. Current liabilities as of March 1 include a $120,000, 15%, 90-day note payable due May 20 and $60,000 of accounts payable incurred in February for manufacturing costs.
All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,800 in dividends will be received in March. An estimated income tax payment of $46,000 will be made in April. Sedona's regular quarterly dividend of $12,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $40,000.
1. Prepare a monthly cash budget for March, April, and May. If an amount is zero or blank, enter "0". Enter all amounts as positive numbers, except as indicated below.
SEDONA HOUSEWARES INC.Cash Budget
For the Three Months Ending May 31, 2010 March April May Estimated cash receipts from: Cash sales $ $ $ Collection of accounts receivable Dividends Total cash receipts $ $ $ Estimated cash payments for: Manufacturing costs $ $ $ Selling and administrative expenses Capital expenditures Other purposes: Notes payable (including interest) Income tax Dividends Total cash payments $ $ $ Cash increase (decrease) (Use minus sign for decreases.) $ $ $ Cash balance at beginning of month Cash balance at end of month $ $ $ Minimum cash balance Excess or (deficiency) (Use the minus sign for a deficiency) $ $ $
Explanation / Answer
March April May Cash sales 65000 73200 85000 Collection of accounts receivable 570000 589500 636660 Dividends 1800 Total cash receipts 636800 662700 721660 Estimated cash payments for: Manufacturing costs 320000 341000 393000 Selling and administrative expenses 175000 225000 245000 Capital expenditures Other purposes: Notes payable (including interest) 124500 Income tax 46000 Dividends 12000 Total cash payments 495000 612000 774500 Cash increase (decrease) (Use minus sign for decreases.) 141800 50700 -52840 Cash balance at beginning of month 30000 171800 222500 Cash balance at end of month 171800 222500 169660 Minimum cash balance 40000 40000 40000 Excess or (deficiency) (Use the minus sign for a deficiency) 131800 182500 129660