B. Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter and has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement at December 31, 2021. Is that a reasonable request? If yes, what should these amounts be?C.Upon receipt of the budget the team manager has now informed you that the management of Miller Merchandising & More have indicated a desire to maintain a minimum cash balance of $125,000 each month. Based on the budget prepared, will the business be achieving this desired target? Given that the management does not wish to borrow any funds from outside sources, suggest three (3) internal strategies that the business may employ in order to improve the organization’s monthly cash flow. Each strategy must be fully explained. The management accountant at Miller Merchandising & More, Qdail Russell is in the process ofpreparing the cash budget for the business for the fourth quarter of 2021. It is customary for thebusiness to borrow money during this quarter. Extracts from the sales and purchases budgets areas follows:CashSalesMonthSalesOn AccountPurchasesAugustSeptemberOctober$85,000$70,000$88,550$77,160$174,870$640,000$550,000$600,000$800,000$500,000$420,000$550,000$500,000$600,000$450,000NovemberDecemberi)An analysis of the records shows that trade receivables are settled according to thefollowing credit pattern, in accordance with the credit terms 4/30, n90:50% in the month of sale30% in the first month following the sale20% in the second month following the saleii)Expected purchases include monthly cash purchases of 5%. All other purchases are onaccount. Accounts payable are settled as follows, in accordance with the credit terms –2/30, n60:60% in the month in which the inventory is purchased40% in the following monthiii)Fixed operating expenses which accrue evenly throughout the year, are estimated to be$1,680,000 per annum, (including depreciation on non-current assets of $420,000 perannum) and is settled monthly.iv)Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.v)Other operating expenses are expected to be $108,000 per quarter and will be settledmonthly. Computer equipment, which is estimated to cost $320,000, will be acquired in November.The manager has made arrangements with the dealer to make a cash deposit of 50% of theamount upon signing of the agreement in November, with the balance to be settled in fourequal monthly instalments, starting in December 2021vii)viii)The management of Miller Merchandising Company has negotiated with a tenant to rentoffice space to her beginning November 1. The rental is $624,000 per annum. The firstmonth's rent along with one month's safety deposit is expected to be collected onNovember 1. Thereafter, monthly rental income becomes due at the beginning of eachmonth.ix)Taxation of $85,000 has to be settled in December.A money market instrument purchased by the company with a face value of $300,000 willmature on October 15, 2021. In order to meet the financial obligations of the business,management has decided to liquidate the investment upon maturity. On that date quarterlyinterest computed at a rate of 5% per annum is also expected to be collected.x)xi)The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.

B. Trade receive as of 31st December = 20% of November credit sales+50% of December credit sales…

Answered: B. Another team member who is preparing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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B. Another team member who is preparing the Budgeted Balance Sheet for the business for
the same quarter and has asked you to furnish him with the figures for the expected trade
receivables and payables to be included in the statement at December 31, 2021. Is that a
reasonable request? If yes, what should these amounts be?

Upon receipt of the budget the team manager has now informed you that the management
of Miller Merchandising & More have indicated a desire to maintain a minimum cash
balance of $125,000 each month. Based on the budget prepared, will the business be
achieving this desired target? Given that the management does not wish to borrow any
funds from outside sources, suggest three (3) internal strategies that the business may
employ in order to improve the organization’s monthly cash flow. Each strategy must be fully
explained.

The management accountant at Miller Merchandising & More, Qdail Russell is in the process of
preparing the cash budget for the business for the fourth quarter of 2021. It is customary for the
business to borrow money during this quarter. Extracts from the sales and purchases budgets are
as follows:
Cash
Sales
Month
Sales
On Account
Purchases
August
September
October
$85,000
$70,000
$88,550
$77,160
$174,870
$640,000
$550,000
$600,000
$800,000
$500,000
$420,000
$550,000
$500,000
$600,000
$450,000
November
December
i)
An analysis of the records shows that trade receivables are settled according to the
following credit pattern, in accordance with the credit terms 4/30, n90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
ii)
Expected purchases include monthly cash purchases of 5%. All other purchases are on
account. Accounts payable are settled as follows, in accordance with the credit terms –
2/30, n60:
60% in the month in which the inventory is purchased
40% in the following month
iii)
Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$1,680,000 per annum, (including depreciation on non-current assets of $420,000 per
annum) and is settled monthly.
iv)
Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
v)
Other operating expenses are expected to be $108,000 per quarter and will be settled
monthly.

Computer equipment, which is estimated to cost $320,000, will be acquired in November.
The manager has made arrangements with the dealer to make a cash deposit of 50% of the
amount upon signing of the agreement in November, with the balance to be settled in four
equal monthly instalments, starting in December 2021
vii)
viii)
The management of Miller Merchandising Company has negotiated with a tenant to rent
office space to her beginning November 1. The rental is $624,000 per annum. The first
month's rent along with one month's safety deposit is expected to be collected on
November 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
ix)
Taxation of $85,000 has to be settled in December.
A money market instrument purchased by the company with a face value of $300,000 will
mature on October 15, 2021. In order to meet the financial obligations of the business,
management has decided to liquidate the investment upon maturity. On that date quarterly
interest computed at a rate of 5% per annum is also expected to be collected.
x)
xi)
The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.

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