Check My WorkCheck My Work eBook Learning Objective 5 Problem-Solving Strategy P
ID: 2468293 • Letter: C
Question
Check My WorkCheck My Work
eBook
Learning Objective 5
Problem-Solving Strategy
Problem-Solving Strategy 4
Cash Budget
The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
The company expects to sell about 15% of its merchandise for cash. Of sales on account, 65% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 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, 75% 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 $45,000, marketable securities of $64,000, and accounts receivable of $137,250 ($104,000 from February sales and $33,250 from January sales). Sales on account for January and February were $95,000 and $104,000, respectively. Current liabilities as of March 1 include a $60,000, 12%, 90-day note payable due May 20 and $8,000 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 $3,600 in dividends will be received in March. An estimated income tax payment of $18,000 will be made in April. Dash Shoes' regular quarterly dividend of $8,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $35,000.
Required:
1. Prepare a monthly cash budget and supporting schedules for March, April, and May. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
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:
Note payable (including interest)
Income tax
Dividends
Total cash payments
Cash increase or (decrease)
Cash balance at beginning of month
Cash balance at end of month
Minimum cash balance
Excess or (deficiency)
$
March April May Sales $119,000 $152,000 $188,000 Manufacturing costs 50,000 65,000 68,000 Selling and administrative expenses 35,000 41,000 41,000 Capital expenditures _ _ 45,000Explanation / Answer
1. Prepare a monthly cash budget and supporting schedules for March, April, and May. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations. Dash Shoes Inc. (All values in $) Cash Budget For the Three Months Ending May 31, 2014 March April May Estimated cash receipts from: Cash sales 17850 22800 28200 Collection of accounts receivable 137250 65747.5 104210 Dividends 3600 Total cash receipts 158700 88547.5 132410 Estimated cash payments for: Manufacturing costs 39500 53250 59250 Selling and administrative expenses 35000 41000 41000 Capital expenditures 45000 Other purposes: Note payable (including interest) 61800 Income tax 18000 Dividends 8000 Total cash payments 92500 156050 145250 Cash increase or (decrease) 66200 -67502.5 -12840 Cash balance at beginning of month 45000 111200 43697.5 Cash balance at end of month 111200 43697.5 30857.5 Minimum cash balance Excess or (deficiency) 76200 8697.5 -4142.5