The menagament nooountant at preparing the cash budget for the business for the fourth quarier of 2021. It is Customery for the business lo borrow money during thin quarler. Exdracts Irom the anlon snd purchanaa budgets am es follows: Miler Merehen deing & More, Odell Runeel i in the process of Cash Sales On Account Month Sales Purchases August September October November December $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

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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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 quarterty
interest computed at a rate of 5% per annum is also expected to be collected.
xl)
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:
o A schedule of budgeted cash collections for trade receivables (sales on account) for each of
the months October to December.
o A schedule of expected cash disbursements for accounts payable (purchases on account)
for each of the months October to December.
O A cash budgel, 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 onths, given that no financing activitios took place.
(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 Miler Merchandising & More have ndicated a desire to maintain a minimum cash
balance of S125.000 cach month. Based on the budget prepared. will the business be
achieving this desired Larget? Given that the management does not wish to borrow any
funds from outside sources. suggest three (3) intenal strategies that the business may
employ in order to mprovethe oreanizaton's monthly cash fow Each strategy must be fully
explained
Transcribed Image Text:Continued 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 quarterty interest computed at a rate of 5% per annum is also expected to be collected. xl) 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: o A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months October to December. o A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December. O A cash budgel, 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 onths, given that no financing activitios took place. (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 Miler Merchandising & More have ndicated a desire to maintain a minimum cash balance of S125.000 cach month. Based on the budget prepared. will the business be achieving this desired Larget? Given that the management does not wish to borrow any funds from outside sources. suggest three (3) intenal strategies that the business may employ in order to mprovethe oreanizaton's monthly cash fow Each strategy must be fully explained
The managament nooountant at Mler Maret
preparing the oash budget for lthe business for the fourth quarier of 2021. It is oustomery for the
usiness lo borrow money during thin quarler. Exracts Irom the anlan and purchanas budgeta aro
es follows:
eing & More, Odel Rusee a in the procen of
Cash
Sales
Sales
On Account
Month
Purcheses
August
September
October
November
December
$640,000
$550,000
$600,000
$800,000
క00,000
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.
585,000
$70,000
$88,550
$77,160
$174,870
$420,000
$550,000
$500,000
S600,000
450,000
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
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 foliowing month
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 S420,000 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.
In the month of November, an old motor vehicle, which cost $650.000, will be sold to an
employee at a gain of S30.000 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 cqual amounts in December
2021 & January of 2022.
vi)
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 sgning of the agreement in November, with the balance to be settled in four
equal monthly instaiments, starting in December 2021
vii)
The management of Miller Merchandising Company has negotiated with a tenant to rent
office space to her begimg Nevember 1 The retal is $624.000 per annum.
month's rent along with one month's safety depost is expected to be colected on
November 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
viii)
The first
Continued.
Page 1
Transcribed Image Text:The managament nooountant at Mler Maret preparing the oash budget for lthe business for the fourth quarier of 2021. It is oustomery for the usiness lo borrow money during thin quarler. Exracts Irom the anlan and purchanas budgeta aro es follows: eing & More, Odel Rusee a in the procen of Cash Sales Sales On Account Month Purcheses August September October November December $640,000 $550,000 $600,000 $800,000 క00,000 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. 585,000 $70,000 $88,550 $77,160 $174,870 $420,000 $550,000 $500,000 S600,000 450,000 50% in the month of sale 30% in the first month following the sale 20% in the second month following the sale 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 foliowing month 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 S420,000 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. In the month of November, an old motor vehicle, which cost $650.000, will be sold to an employee at a gain of S30.000 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 cqual amounts in December 2021 & January of 2022. vi) 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 sgning of the agreement in November, with the balance to be settled in four equal monthly instaiments, starting in December 2021 vii) The management of Miller Merchandising Company has negotiated with a tenant to rent office space to her begimg Nevember 1 The retal is $624.000 per annum. month's rent along with one month's safety depost is expected to be colected on November 1. Thereafter, monthly rental income becomes due at the beginning of each month. viii) The first Continued. Page 1
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