Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2590745 • Letter: C
Question
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 12% of its merchandise for cash. Of sales on account, 70% 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, 85% 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 $35,000, marketable securities of $50,000, and accounts receivable of $103,200 ($81,000 from February sales and $22,200 from January sales). Sales on account for January and February were $74,000 and $81,000, respectively. Current liabilities as of March 1 include a $47,000, 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 $2,800 in dividends will be received in March. An estimated income tax payment of $13,000 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 $27,000.
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)
$
$
$
2. The budget indicates that the minimum cash balance
be maintained in May. This situation can be corrected by and/or by the of the marketable securities, if they are held for such purposes. At the end of March and April, the cash balance will
the minimum desired balance.
March April May Sales $93,000 $111,000 $153,000 Manufacturing costs 39,000 48,000 55,000 Selling and administrative expenses 27,000 30,000 34,000 Capital expenditures _ _ 37,000 IlS PrOblem 21-4 (Algorithmic) eBook Problem-Solving Strategy Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months March April May $93,000 $111,000 $%153,000 Sales Manufacturing costs Selling and administrative expenses Capital expenditures The company expects to sell about 12% of its merchandise for cash. Of sales on account, 70% are expected the following month (second month following sale). Depreciation, insurance, and property tax expense repres annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remain the month in which they are incurred and the balance in the following month. Current assets as of March 1 include cash of $35,00o, marketable securities of $50,000, and accounts receiva January sales). Sales on account for January and February were $74,000 and $81,000, respectively. Current li payable due May 20 and $8,o00 of accounts payable incurred in February for manufacturing costs. All selling a 39,000 48,000 55,000 27,000 30,00034,000 37,000 are incurred. It is expected that $2,800 in dividends will be received in March. An estimated income tax paymer t00 r oxnected to he declared in April and paid in May. Management desires to mExplanation / Answer
1) Dash Shoes Inc.
Cash Budget (Amount in $)
Working note:
Interest on note payable = $47,000*12%*90/360 = $1,410
Total cash payment for note payable incuding interest = $47,000+$1,410 = $48,410
2) The budget indicates that the cash balance at the end of may has a deficiency of $36,304 which can be corrected by converting marketable securities of $50,000 into cash.
Particulars March April May Estimated cash receipts from: Cash Sales (12% of current month sales) (A) 11,160 13,320 18,360 Collection of Accounts Receivable: for the month of January 22,200 for the month of February 56,700 24,300 for the month of March 57,288 24,552 For the month of April 68,376 Total Collection from receivables (B) 78,900 81,588 92,928 Dividends (C) 2,800 - - Total Cash Receipts (A+B+C) 92,860 94,908 111,288 Estimated Cash payments for: Manufacturing costs: for the month of February 8,000 for the month of March (39,000-8,000) 26,350 4,650 for the month of April (48,000-8,000) 34,000 6,000 for the month of May (55,000-8,000) 39,950 Total Manufacturing costs (D) 34,350 38,650 45,950 Selling and administrative expenses (E) 27,000 30,000 34,000 Capital expenditures (F) 37,000 Other purposes: Note payable (including interest) (G) 48,410 Income tax (H) 13,000 Dividends (I) 8,000 Total cash payments (D+E+F+G+H+I) 61,350 81,650 173,360 Cash increase or (decrease) (i) 31,510 13,258 -62,072 Cash balance at beginning of month (ii) 35,000 66,510 52,768 Cash balance at end of month [(iii) = (i)+(ii)] 66,510 79,768 -9,304 Minimum cash balance (iv) 27,000 27,000 27,000 Excess or (deficiency) [(iii)-(iv)] 39,510 52,768 -36,304