The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:   June July August Sales $160,000   $185,000   $200,000   Manufacturing costs 66,000   82,000   105,000   Selling and administrative expenses 40,000   46,000   51,000   Capital expenditures _   _   120,000   The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of June 1 include cash of $42,000, marketable securities of $25,000, and accounts receivable of $198,000 ($150,000 from May sales and $48,000 from April sales). Sales on account in April and May were $120,000 and $150,000, respectively. Current liabilities as of June 1 include $13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $24,000 will be made in July. Mercury Shoes' regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management wants to maintain a minimum cash balance of $40,000. Required: 1.  Prepare a monthly cash budget and supporting schedules for June, July, and August. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency). Use the minus sign to indicate an overall cash decrease and deficiency. Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31   June July August Estimated cash receipts from:       Cash sales $ $ $ Collection of accounts receivable       Total cash receipts $ $ $ Estimated cash payments for:       Manufacturing costs $ $ $ Selling and administrative expenses       Capital expenditures       Other purposes:       Income tax       Dividends       Total cash payments $ $ $ Cash increase or (decrease) $ $ $ Cash balance at beginning of month       Cash balance at end of month $ $ $ Minimum cash balance       Excess or (deficiency) $ $ $ 2.  The budget indicates that the minimum cash balance   be maintained in August. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of June and July the cash balance will   the minimum desired balance.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

  June July August
Sales $160,000   $185,000   $200,000  
Manufacturing costs 66,000   82,000   105,000  
Selling and administrative expenses 40,000   46,000   51,000  
Capital expenditures _   _   120,000  

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of June 1 include cash of $42,000, marketable securities of $25,000, and accounts receivable of $198,000 ($150,000 from May sales and $48,000 from April sales). Sales on account in April and May were $120,000 and $150,000, respectively. Current liabilities as of June 1 include $13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $24,000 will be made in July. Mercury Shoes' regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management wants to maintain a minimum cash balance of $40,000.

Required:

1.  Prepare a monthly cash budget and supporting schedules for June, July, and August. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency). Use the minus sign to indicate an overall cash decrease and deficiency.

Mercury Shoes Inc.
Cash Budget
For the Three Months Ending August 31
  June July August
Estimated cash receipts from:      
Cash sales $ $ $
Collection of accounts receivable      
Total cash receipts $ $ $
Estimated cash payments for:      
Manufacturing costs $ $ $
Selling and administrative expenses      
Capital expenditures      
Other purposes:      
Income tax      
Dividends      
Total cash payments $ $ $
Cash increase or (decrease) $ $ $
Cash balance at beginning of month      
Cash balance at end of month $ $ $
Minimum cash balance      
Excess or (deficiency) $ $ $

2.  The budget indicates that the minimum cash balance   be maintained in August. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of June and July the cash balance will   the minimum desired balance.

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