The company expects to sell about 10% of its merchandise for cash. Of sales on a
ID: 2592683 • 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 the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $3,500 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, 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 May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively. Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma’s regular quarterly dividend of $5,000 is expected to be declared in June and paid in July. Management desires to maintain a minimum cash balance of $30,000.
Required:
1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2014. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.
Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31, 2014
May
June
July
Estimated cash receipts from:
Cash sales
$
$
$
Collection of accounts receivable
Total cash receipts
$
$
$
Estimated cash payments for:
Manufacturing costs
$
$
$
Selling and administrative expenses
Capital expenditures
Other purposes:
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 Selectwillwill notCorrect 1 of Item 2 be maintained in July. This situation can be corrected by SelectinvestingborrowingCorrect 2 of Item 2 and/or by the SelectpurchasesaleCorrect 3 of Item 2 of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will Selectexceedbe short ofCorrect 4 of Item 2 the minimum desired balance.
Hide1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2014. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.
Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31, 2014
May
June
July
Estimated cash receipts from:
Cash sales
$
$
$
Collection of accounts receivable
Total cash receipts
$
$
$
Estimated cash payments for:
Manufacturing costs
$
$
$
Selling and administrative expenses
Capital expenditures
Other purposes:
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)
$
$
$
Explanation / Answer
Sonoma Housewares Inc. Cash Budget For the Three Months Ending July 31, 2014 May June July Estimated cash receipts from: Cash sales 8600 9000 9500 Collection of accounts receivable 68400 75780 79920 Total cash receipts 77000 84780 89420 Estimated cash payments for: Manufacturing costs 30400 34500 39500 Selling and administrative expenses 15000 16000 22000 Capital expenditures 80000 Other purposes: Income tax 14000 Dividends 5000 Total cash payments 45400 64500 146500 Cash increase or (decrease) 31600 20280 -57080 Cash balance at beginning of month 33000 64600 84880 Cash balance at end of month 64600 84880 27800 Minimum cash balance 30000 30000 30000 Excess or (deficiency) 34600 54880 -2200