Reference no: EM131911375

Question - Cash Budget

Cash budgeting for Carolina Apple, a merchandising firm, is performed on a quarterly basis. The company is planning its cash needs for the third quarter of 2012, and the following information is available to assist in preparing a cash budget. Budgeted income statements for July through October 2012 are as follows:

	July	August	September	October
Sales	$18,000	24,000	28,000	36,000
Cost of goods sold	(10,000)	(14,000)	(16,000)	(20,000)
Gross profit	8,000	10,000	12,000	16,000
Less other expenses
Selling	2300	3000	3400	4200
Administrative	2600	3000	3200	3600
Total	(4900)	(6000)	(6600)	(7800)
Net income	3100	4000	5400	8200

Additional information:

1. Other expenses which are paid monthly include $1000 of depreciation per month.

2. Sales are 30% for cash and 70% on credit.

3. Credit sales are collected 20% in the month of sale, 70% one month after sale and 10% two months after sale. May sales were $15,000 and june sales were $16,000.

4. Merchandise is paid for 50% in the month of purchase; the remaining 50% is paid in the following month. Accounts payable for merchandise at june 30 totaled $6000.

5. The company maintains its ending inventory levels at 25% of the cost of goods to be sold in the following month. The inventory at june 30 is $2500.

6. An equipment note of $5000 per month is being paid through August.

7. The company must maintain a cash balance of at least $5000 at the end of each month. The cash balance on june 30 is $5100.

8. The company can borrow from its bank as needed. Borrowings and repayments must be in multiples of $100. All borrowings must take place at the beginning of a month, and all repayments are made at the end of the month. When the principal is repaid, interest on the repayment is also paid. The interest rate is 12% per year.

Required

a. Prepare a monthly schedule of budgeted operating cash receipts for july, august and September.

b. Prepare a monthly purchases budget and a schedule of budgeted cash payments for purchases for july, aug and sept.

c. Prepare a monthly cash budget for july, aug and sept. Show borrowings from the company's bank and repayments to the bank as needed to maintain the minimum cash balance.