Reference no: EM132559013
Haverford Company has the following information related to preparing the first quarter 2021 Cash Budget.
a. Budgeted Sales and Budgeted Purchases for 2021 are detailed below:
Sales Material Purchases
4th Quarter 2020 $310,000 $180,000
1st Quarter 2021 $575,000 $245,000
2nd Quarter 2021 $525,000 $325,000
3rd Quarter 2021 $595,000 $360,000
4th Quarter 2021 $450,000 $220,000
The company collects 35% of sales immediately. The remaining 65% is collected in the quarter following the sale. In addition 20% of purchases are paid for immediately. The remainder are paid for in the quarter following the sale.
b. Labor costs are fixed at $58,000 per quarter.
c. Selling and Administrative expenses are $80,000 per quarter plus 10% of sales. Included in the $80,000 is depreciation of $15,000.
d. Haverford has historically paid $6,000 in cash dividends each quarter.
e. The company plans to purchase new equipment in 2021 using cash on hand. The equipment will cost $100,000. The company will pay $60,000 in the 1st quarter and $40,000 in the 2nd quarter.
f. The cash account began 2021 with a balance of $22,000. The company must maintain a minimum balance of $18,000.
Required:
Question 1: Prepare the Cash Budget with supporting schedules for cash collections and cash disbursements for the FIRST QUARTER ONLY.
Question 2: Do you recommend the equipment purchase? Write a email to the president of the company with your recommendations.
Question 3: Calculate the 12/31/21 ending balance of Accounts Receivable and Accounts Payable.