Reference no: EM133092563
Question - Quality Co requires a minimum cash balance of $25,000 at the end of February of the current year. Any required borrowings take place in increments of $1,000 with annual interest of 8%. Repayments of borrowed funds are also made in increments of $1,000. Assume that borrowings are made on the first day of the month in which the cash is required, and that repayments are made on the last day of a month in which excess cash is available. The cash balance at January 31 is $28,000.
Actual and projected total sales are as follows:
December (prior year actual) $90,000
January (actual) $125,000
February (projected) $150,000
March (projected) $75,000
Experience shows that of total sales in a given month, 20% will be in cash and 80% will be on account. Experience indicates that the store will collect 60% of credit sales in the month of the sale, 30% in the month following the sale, and 7% in the second month following the sale. The remaining 3% is uncollectible. DairyLand does not give sales discounts for early customer payment.
In January the store sold some used equipment for $11,000 and expects to collect this amount in February. The new equipment to replace it costs $24,000 and will be bought and paid for in February.
Purchases in a given month average sixty percent (60%) of projected sales for that month (that is, the cost of goods sold averages 60% of the revenues from those sales). The owners pay all accounts payable arising from inventory purchases in time to receive a 2% discount. On average, 70% of the accounts payable related to inventory purchases are paid for in the month of purchase, with the remaining 30% being paid in the following month.
Budgeted operating expenses for February include rent ($27,000), advertising ($9,000), employee salaries ($42,000), amortization ($6,000), and insurance ($1,000). Amortization and insurance expense are recorded as the related assets are used up. The annual insurance premium ($12,000) was paid in January.
Required -
1. Prepare a schedule of Cash Receipts for February.
2. Prepare a schedule of Cash Disbursements for February.
3. Prepare a Cash Budget for February.
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