Mahogany Shoe Factory is a family-owned shoe company. The accountant is in the process of preparing the cash budget for the business for the quarter ending June 30 2016. Extracts from the sales and purchases budgets are as follows: Month Purchases on Cash Sales Sales on Account 2016 Account February $70,000 $525,000 $390,000 March $55,000 $640,000 $340,000 April $52,250 $800,000 $400,000 May $51,750 $600,000 $450,000 June $60,000 $720,000 $500,000 1. An analysis of the records shows that trade receivables (accounts receivables) are settled according to the following credit pattern, in accordance with the credit terms 5/30, n/90: 50% in the month of sale 30% in the first month following the sale 20% in the second month following the sale 2. Accounts payable are settled as follows, in accordance with the credit terms 2/30, n/60 75% in the month in which the inventory is purchased 25% in the following month 3. In the month of June, old computer equipment with a net book value of $90,000 will be sold for cash to employees at a profit of $20,000. 4. A new point of sale system, which is estimated to cost $1,348,000, will be installed in June. $248,000 of this amount is due to be paid upon installation in June. 5. A money market instrument purchased by the company with a value of $562,500 will mature on April 15, 2016. 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 8% per annum is also expected to be collected.
Mahogany Shoe Factory is a family-owned shoe company. The accountant is in the process of preparing the cash budget for the business for the quarter ending June 30 2016. Extracts from the sales and purchases budgets are as follows: Month Purchases on Cash Sales Sales on Account 2016 Account February $70,000 $525,000 $390,000 March $55,000 $640,000 $340,000 April $52,250 $800,000 $400,000 May $51,750 $600,000 $450,000 June $60,000 $720,000 $500,000 1. An analysis of the records shows that trade receivables (accounts receivables) are settled according to the following credit pattern, in accordance with the credit terms 5/30, n/90: 50% in the month of sale 30% in the first month following the sale 20% in the second month following the sale 2. Accounts payable are settled as follows, in accordance with the credit terms 2/30, n/60 75% in the month in which the inventory is purchased 25% in the following month 3. In the month of June, old computer equipment with a net book value of $90,000 will be sold for cash to employees at a profit of $20,000. 4. A new point of sale system, which is estimated to cost $1,348,000, will be installed in June. $248,000 of this amount is due to be paid upon installation in June. 5. A money market instrument purchased by the company with a value of $562,500 will mature on April 15, 2016. 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 8% per annum is also expected to be collected.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Need help
![BBC Session 3: Cash Budgets
Mahogany Shoe Factory is a family-owned shoe company. The accountant is in the process of
preparing the cash budget for the business for the quarter ending June 30 2016. Extracts from the
sales and purchases budgets are as follows:
Month
Purchases on
Cash Sales
Sales on Account
2016
Account
February
$70,000
$525,000
$390,000
March
$55,000
$640,000
$340,000
April
$52,250
$800,000
$400,000
May
$51,750
$600,000
$450,000
June
$60,000
$720,000
$500,000
1. An analysis of the records shows that trade receivables (accounts receivables) are settled
according to the following credit pattern, in accordance with the credit terms 5/30, n/90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
2. Accounts payable are settled as follows, in accordance with the credit terms 2/30, n/60
75% in the month in which the inventory is purchased
25% in the following month
3. In the month of June, old computer equipment with a net book value of $90,000 will be sold
for cash to employees at a profit of $20,000.
4. A new point of sale system, which is estimated to cost $1,348,000, will be installed in June.
$248,000 of this amount is due to be paid upon installation in June.
5. A money market instrument purchased by the company with a value of $562,500 will mature
on April 15, 2016. 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 8% per annum is also expected to be collected.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf35951d-b484-46bb-ac46-25fb67c2f562%2F60e308ac-dfe8-472e-93ba-4f344a31b588%2F9nl5fsh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:BBC Session 3: Cash Budgets
Mahogany Shoe Factory is a family-owned shoe company. The accountant is in the process of
preparing the cash budget for the business for the quarter ending June 30 2016. Extracts from the
sales and purchases budgets are as follows:
Month
Purchases on
Cash Sales
Sales on Account
2016
Account
February
$70,000
$525,000
$390,000
March
$55,000
$640,000
$340,000
April
$52,250
$800,000
$400,000
May
$51,750
$600,000
$450,000
June
$60,000
$720,000
$500,000
1. An analysis of the records shows that trade receivables (accounts receivables) are settled
according to the following credit pattern, in accordance with the credit terms 5/30, n/90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
2. Accounts payable are settled as follows, in accordance with the credit terms 2/30, n/60
75% in the month in which the inventory is purchased
25% in the following month
3. In the month of June, old computer equipment with a net book value of $90,000 will be sold
for cash to employees at a profit of $20,000.
4. A new point of sale system, which is estimated to cost $1,348,000, will be installed in June.
$248,000 of this amount is due to be paid upon installation in June.
5. A money market instrument purchased by the company with a value of $562,500 will mature
on April 15, 2016. 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 8% per annum is also expected to be collected.
![6. Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$1,860,000 per annum, (including depreciation on non-current assets of $30,000 per month)
and is settled monthly
7. Other operating expenses are expected to be $162,000 per quarter and are settled monthly
8. Wages & Salaries are expected to be $2,592,000 per annum and will be paid monthly.
9. A compensation payment of $396,000 to a former employee for an industrial injury, not
covered by insurance, becomes due and payable in April
10. Mahogany Shoe Factory has negotiated with a tenant to rent storage space to him beginning
April 1. The rental negotiated
80,000 per annum. The first month's rent alo
with one
month's safety deposit will be collected from the tenant on April 1. Thereafter, the monthly
rental is expected to be received at the beginning of each month.
11. The cash balance on March 31 2016 is expected to be an overdraft of $165,000
Required:
a) Prepare a schedule of budgeted cash collections for sales on account for each of the 3
months April to June.
b) Prepare a schedule of expected cash disbursements for purchases for the quarter to June 30
2016
c)
Prepa
a cash budget, with a total column, for the quarter ending June 30, 2016, showing
receipts and payments for each month
d) Mahogany currently has a loan and one of the covenants is to maintain a minimum cash
balance of $150,000 each month. Based on the budget prepared, will the business be
meeting this covenant? Suggest four possible steps (other than borrowing) that may be
taken by management to improve the cash flow.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf35951d-b484-46bb-ac46-25fb67c2f562%2F60e308ac-dfe8-472e-93ba-4f344a31b588%2Fgczoqgb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:6. Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$1,860,000 per annum, (including depreciation on non-current assets of $30,000 per month)
and is settled monthly
7. Other operating expenses are expected to be $162,000 per quarter and are settled monthly
8. Wages & Salaries are expected to be $2,592,000 per annum and will be paid monthly.
9. A compensation payment of $396,000 to a former employee for an industrial injury, not
covered by insurance, becomes due and payable in April
10. Mahogany Shoe Factory has negotiated with a tenant to rent storage space to him beginning
April 1. The rental negotiated
80,000 per annum. The first month's rent alo
with one
month's safety deposit will be collected from the tenant on April 1. Thereafter, the monthly
rental is expected to be received at the beginning of each month.
11. The cash balance on March 31 2016 is expected to be an overdraft of $165,000
Required:
a) Prepare a schedule of budgeted cash collections for sales on account for each of the 3
months April to June.
b) Prepare a schedule of expected cash disbursements for purchases for the quarter to June 30
2016
c)
Prepa
a cash budget, with a total column, for the quarter ending June 30, 2016, showing
receipts and payments for each month
d) Mahogany currently has a loan and one of the covenants is to maintain a minimum cash
balance of $150,000 each month. Based on the budget prepared, will the business be
meeting this covenant? Suggest four possible steps (other than borrowing) that may be
taken by management to improve the cash flow.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 6 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education