Accounting Chapter 22 4 Cambridge, Inc., is preparing its master budget for the quarter ended

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140. Cambridge, Inc., is preparing its master budget for the quarter ended June 30. It sells a

single product for $40 each. Sales are 60% cash and 40% on credit. All credit sales are

collected in the month following the sale. At March 31, the balance in accounts receivable is

$12,000, which represents the uncollected balance on March sales. Budgeted sales for the

next four months follow:

April May June July

Sales in Units ……….. 800 1,000 600 1,200

The product cost is $20 per unit, and desired ending inventory is 60% of the following

month’s sales in units. Inventory at March 31 is 480 units. Purchases are paid 50% in the

month of purchase and 50% in the following month. At March 31, the balance in accounts

payable is $11,000, which represents the unpaid purchases from March. Operating expenses

are paid in the month incurred and consist of:

· Commissions (10% of sales)

· Shipping (3% of sales)

· Office salaries ($3,000 per month)

· Rent ($5,000 per month)

Depreciation is $2,000 per month. Income taxes are 40%, and will be paid on July 1. There

are no taxes payable at March 31. A minimum cash balance of $12,000 is required, and the

beginning cash balance is $12,000. Loans are obtained at the end of any month when a cash

shortage occurs. Interest is 1% per month based on the beginning of the month loan balance

and is paid at each month end. If an excess balance of cash exists, loans are repaid at the end

of the month. At March 31, the loan balance is $2,000. Prepare a master budget (round all

dollar amounts to the nearest whole dollar) for each of the months of April, May, and June

that includes the:

· Sales budget

· Table of cash receipts

· Merchandise purchases budget

· Table of cash disbursements for purchases of merchandise

· Table of cash disbursements for selling and administrative expenses

· Cash budget, including information on the loan balance

· Budgeted income statement

141. Miles Company is preparing a cash budget for February. The company has $30,000

cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250 in

cash disbursements during February. Miles Company has an agreement with its bank to

maintain a cash balance of $10,000. What amount, if any, must the company borrow during

February to maintain a $10,000 cash balance?

142. Airtex Company budgeted the following credit sales during the current year: September,

$90,000; October, $123,000; November, $105,000; December, $111,000. Experience has

shown that cash from credit sales is received as follows: 10% in the month of sale, 50% in the

first month after sale, 35% in the second month after sale, and 5% is uncollectible. How much

cash should Airtex Company expect to collect in November from all current and past credit

sales?

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143. The Lamb Company budgeted sales for January, February, and March of $96,000,

$88,000, and $72,000, respectively. Seventy percent of sales are on credit. The company

collects 60% of its credit sales in the month following sale, 35% in the second month

following sale, and 5% is not collected. What are Lamb’s expected cash receipts for March

related to all current and past sales?

144. Rich Company’s experience shows that 20% of its sales are for cash and 80% are on

credit. An analysis of credit sales shows that 50% are collected in the month following the

sale, 45% are collected in the second month, and 5% prove to be uncollectible. Calculate

August September October November

Sales ……….. $500,000 $525,000 $535,000 $560,000

October November

(1) Receipts from cash sales ……………… (1) (6)

(2) Collections from August credit sales … (2) (7)

(3) Collections from September credit

sales (3) (8)

(4) Collections from October credit sales ... (4) (9)

(5) Total cash collections during the month (5) (10)

145. Use the following data to determine the company’s cash disbursements for each month of

August and September:

July August September

Sales……………….. $24,000 $32,000 $36,000

Purchases…………. 14,400 $19,200 $21,600

Payments for purchases……….. One month after purchase

Selling expenses………………… 15% of sales, paid in the month of sale

Administrative expenses……….. 10% of sales, paid in the month of sale

Rent expense……………………. $2,400 per month

Equipment depreciation………… $1,300 per month

146. Slim Corp. requires a minimum $8,000 cash balance. If necessary, loans are taken to

meet this requirement at a cost of 1% interest per month (paid monthly). Loans are repaid at

month’s end from any excess cash. The cash balance on July 1 is $8,400. Cash receipts other

than for loans received for July, August, and September are forecasted as $24,000, $32,000,

and $40,000, respectively. Payments other than for loan or interest payments for the same

period are planned at $28,000, $30,000, and $32,000, respectively at July 1, there are no

outstanding loans.

Required:

Prepare a cash budget for July, August, and September.

147. The following information is available for Hammel Company:

a. The Cash Budget for March shows a bank loan of $10,000 and an ending cash balance of

$48,000.

b. The Sales Budget for March indicates sales of $120,000. Accounts receivable is expected to

be 70% of the current-month sales.

c. The Merchandise Purchases Budget indicates that $90,000 in merchandise will be

purchased in March on account and ending inventory for March is predicted to be 600 units @

$35. Purchases on account are paid 100% in the month following the purchase.

d. The Budgeted Income Statement shows a net income of $48,000 and $26,000 in income tax

expense for the quarter ended March 31. Accrued taxes will be paid in April.

e. The Balance Sheet for February shows equipment of $84,000 with accumulated

depreciation of $30,000, common stock of $25,000 and ending retained earnings of $8,000.

There are no changes budgeted in the equipment or common stock accounts.

Prepare a budgeted balance sheet for March.

148. Del Carpio, Inc., sells two products, Widgets and Gadgets. The sales forecast in units for

the first quarter of the coming year is:

Widgets Gadgets

January….. 20,000 36,000

February… 28,000 60,000

March…… 36,000 64,000

Cash sales are 30% of each product’s monthly sales. The remaining sales are credit sales

which are collected as follows: 70% in the month of sale, 20% the next month, and 10% in the

following month. Unit sale prices are $30 and $20 for Widgets and Gadgets, respectively.

Determine the company’s cash receipts for March from its current and past sales.