Question ANSWER B ONLY AND CALCULATE TOTAL The management accountant at Miller Merchandising & More, Odail 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: Month                 Cash Sales              Sales on Account     Purchases August                 $85,000                   $640,000                 $420,000 September             70,000                     550,000                   550,000 October                 88,550                     600,000                   500,000  November             77,160                     800,000                   600,000 December             174,870                   500,000                   450,000    i) An analysis of the records

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Topic Video
Question
Question ANSWER B ONLY AND CALCULATE TOTAL

The management accountant at Miller Merchandising & More, Odail 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:
Month                 Cash Sales              Sales on Account     Purchases
August                 $85,000                   $640,000                 $420,000
September             70,000                     550,000                   550,000
October                 88,550                     600,000                   500,000 
November             77,160                     800,000                   600,000
December             174,870                   500,000                   450,000   

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.


vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an employee at a gain of $30,000. Accumulated depreciation on the motor vehicle at that time is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in November and the balance settled in two equal amounts in December
2021 & January of 2022.


vii) 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


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.


x) 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.


xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.


Required:
(a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following:
▪ A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months October to December. 


▪ A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December.


(B)A cash budget, with a total column, for the quarter ending December 31, 2021, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place. 

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Performance measurements
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.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education