Chapter 22, Problem 7APSA

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 1-

To prepare:

Schedule of expected cash collections of credit sales.

Answer to Problem 7APSA

Aztec Company
Schedule of expected cash collections
Particulars	April	May	June	July
Budgeted/ Actual sales	720,000	360,000	1,080,000	900,000
Collections from accounts receivable-
Collection of April months' sales			201,600
Collection of May months' sales			180,000	100,800
Collection of June months' sales			216,000	540,000
Collection of July months' sales				180,000
Total collections of credit sales			597,600	820,800

Explanation of Solution

June-

  $\begin{array}{l}CollectionofAprilmonths\text{'}sales=Aprilmonths\text{'}sales*28\%\hfill \\ CollectionofAprilmonths\text{'}sales=\$720,000*28\%\hfill \\ CollectionofAprilmonths\text{'}sales=201,600\hfill \end{array}$

  $\begin{array}{l}CollectionofMaymonths\text{'}sales=Maymonths\text{'}sales*50\%\hfill \\ CollectionofMaymonths\text{'}sales=\$360,000*50\%\hfill \\ CollectionofMaymonths\text{'}sales=\$180,000\hfill \end{array}$

  $\begin{array}{l}CollectionofJunemonths\text{'}sales=Junemonths\text{'}sales*20\%\hfill \\ CollectionofJunemonths\text{'}sales=\$1,080,000*20\%\hfill \\ CollectionofJunemonths\text{'}sales=\$216,000\hfill \end{array}$

Total collection of credit sales of June month is calculated as under-

  $\begin{array}{l}\begin{array}{l}TotalcollectionofcreditsalesofJune=CollectionofAprilmonths\text{'}sales\\ +CollectionofMaymonths\text{'}sales+CollectionofJunemonths\text{'}sales\end{array}\hfill \\ TotalcollectionofcreditsalesofJune=\$201,600+\$180,000+\$216,000\hfill \\ TotalcollectionofcreditsalesofJune=\$597,600\hfill \end{array}$

July-

  $\begin{array}{l}CollectionofMaymonths\text{'}sales=Maymonths\text{'}sales*\text{ 28}\%\hfill \\ CollectionofMaymonths\text{'}sales=\$360,000*\text{ 28}\%\hfill \\ CollectionofMaymonths\text{'}sales=\$100,800\hfill \end{array}$

  $\begin{array}{l}CollectionofJunemonths\text{'}sales=Junemonths\text{'}sales*\text{ 5}0\%\hfill \\ CollectionofJunemonths\text{'}sales=\$1,080,000*\text{ 5}0\%\hfill \\ CollectionofJunemonths\text{'}sales=\$540,000\hfill \end{array}$

  $\begin{array}{l}\begin{array}{l}CollectionofJulymonths\text{'}sales=Julymonths\text{'}sales*20\%\hfill \\ CollectionofJulymonths\text{'}sales=\$900,000*20\%\hfill \end{array}\\ CollectionofJulymonths\text{'}sales=\$180,000\end{array}$

Total collection of credit sales of July month is calculated as under-

  $\begin{array}{l}\begin{array}{l}TotalcollectionofcreditsalesofJuly=CollectionofMaymonths\text{'}sales\\ +CollectionofJunemonths\text{'}sales+CollectionofJulymonths\text{'}sales\end{array}\hfill \\ TotalcollectionofcreditsalesofJuly=\$100,800+\$540,000+\$180,000\hfill \\ TotalcollectionofcreditsalesofJuly=\$820,800\hfill \end{array}$

Conclusion:

Thus, schedule of expected cash collections of credit sales is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 2-

To prepare:

Schedule of budgeted ending inventories.

Answer to Problem 7APSA

Aztec Company
Schedule of budgeted ending inventory
Particulars	April	May	June	July
Next period's budgeted sales (units)	2,000	6,000	5,000	3,800
Ratio of inventory of future sales	20%	20%	20%	20%
Expected budgeted sales (units)	400	1,200	1,000	760
Add: Safety stock (units)	100	100	100	100
Budgeted ending inventory (units)	500	1,300	1,100	860

Explanation of Solution

Given,

• April sales = 4,000 units
• May sales = 2,000 units
• June sales = 6,000 units
• July sales = 5,000 units
• August sales = 3,800 units

  $\begin{array}{l}Budgetedendinginventory=(Nextperiod’sbudgetedsales*Ratioofinventoryoffuturesales)\\ +Safetystock\end{array}$

April

  $\begin{array}{l}Budgetedendinginventory=\left(Maysales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(2,000*20\%\right)+100\hfill \\ Budgetedendinginventory=400+100\hfill \\ Budgetedendinginventory=500\hfill \end{array}$

May

  $\begin{array}{l}Budgetedendinginventory=\left(Junesales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(6,000*20\%\right)+100\hfill \\ Budgetedendinginventory=1,200+100\hfill \\ Budgetedendinginventory=1,300\hfill \end{array}$

June

  $\begin{array}{l}Budgetedendinginventory=\left(Julysales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(5,000*20\%\right)+100\hfill \\ Budgetedendinginventory=1,000+100\hfill \\ Budgetedendinginventory=1,100\hfill \end{array}$

July

  $\begin{array}{l}Budgetedendinginventory=\left(Augustsales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(3,800*20\%\right)+100\hfill \\ Budgetedendinginventory=760+100\hfill \\ Budgetedendinginventory=860\hfill \end{array}$

Conclusion:

Thus, schedule of budgeted ending inventory is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 3-

To prepare:

Merchandise purchase budget.

Answer to Problem 7APSA

Aztec Company
Merchandise purchase budget
Particulars	April	May	June	July
Budgeted ending inventory	500	1,300	1,100	860
Add: Budgeted sales for the period		2,000	6,000	5,000
Required inventory		3,300	7,100	5,860
Deduct: Beginning inventory		(500)	(1,300)	(1,100)
Units to be purchased		2,800	5,800	4,760
Rate per unit		$110	$110	$110
Dollar amount of budgeted purchases		$308,000	$638,000	$523,600

Explanation of Solution

Given,

Budgeted ending inventory- (Calculated in requirement 2)

• April = 500 units
• May = 1,300 units
• June = 1,100 units
• July = 860 units

Budgeted sales for the period

• May = 2,000 units
• June = 6,000 units
• July = 5,000 units

Units to be purchased is calculated as follows-

  $Unitstobepurchased=Budgetedendinginventory+Budgetedsalesfortheperiod-Beginninginventory$

May

  $\begin{array}{l}Unitstobepurchased=1,300+2,000-500\hfill \\ Unitstobepurchased=2,800units\hfill \end{array}$

June

  $\begin{array}{l}Unitstobepurchased=1,100+6,000-1,300\hfill \\ Unitstobepurchased=5,800units\hfill \end{array}$

July

  $\begin{array}{l}Unitstobepurchased=860+5,000-1,100\\ Unitstobepurchased=4,760units\end{array}$

Dollar amount of budgeted purchases is calculated as follows-

$Dollaramountofbudgetedpurchases=Unitstobepurchased*Rateperunit$

May

  $\begin{array}{l}Dollaramountofbudgetedpurchases=2,800*\$110\hfill \\ Dollaramountofbudgetedpurchases=\$308,000\hfill \end{array}$

June

  $\begin{array}{l}Dollaramountofbudgetedpurchases=5,800*\$110\hfill \\ Dollaramountofbudgetedpurchases=\$638,000\hfill \end{array}$

July

  $\begin{array}{l}Dollaramountofbudgetedpurchases=4,760*\$110\hfill \\ Dollaramountofbudgetedpurchases=\$523,600\hfill \end{array}$

Conclusion:

Thus, merchandise purchase budget is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 4-

To prepare:

Schedule of cash payments for purchases.

Answer to Problem 7APSA

Aztec Company
Schedule of expected cash payments for purchases
Particulars	May	June	July
Budgeted purchases	308,000	638,000	523,600
Cash disbursements for purchases-
Payment of May month's purchases		123,200
Payment of June month's purchases		382,800	255,200
Payment of July month's purchases			314,160
Total cash disbursements of purchases		506,000	569,360

Explanation of Solution

Budgeted purchases- (calculated in requirement 3)

• May = 308,000
• June = 638,000
• July = 523,600

June-

  $\begin{array}{l}PaymentofMaymonth\text{'}spurchases=Maymonth\text{'}spurchases*40\%\\ PaymentofMaymonth\text{'}spurchases=\$308,000*40\%\\ PaymentofMaymonth\text{'}spurchases=\$123,200\\ \\ PaymentofJunemonth\text{'}spurchases=Junemonth\text{'}spurchases*60\%\\ PaymentofJunemonth\text{'}spurchases=\$638,000*60\%\\ PaymentofJunemonth\text{'}spurchases=\$382,800\end{array}$

Total cash disbursements of purchases is calculated as follows-

  $\begin{array}{l}Totalcashdisbursementsofpurchases=PaymentofMaymonth\text{'}spurchases\\ +PaymentofJunemonth\text{'}spurchases\\ Totalcashdisbursementsofpurchases=\$123,200+\$382,800\\ Totalcashdisbursementsofpurchases=\$506,000\end{array}$

July-

  $\begin{array}{l}PaymentofJunemonth\text{'}spurchases=Junemonth\text{'}spurchases*\text{ 4}0\%\\ PaymentofJunemonth\text{'}spurchases=\$638,000*\text{ 40}\%\\ PaymentofJunemonth\text{'}spurchases=\$255,200\\ \\ PaymentofJulymonth\text{'}spurchases=Julymonth\text{'}spurchases*\text{ 6}0\%\\ PaymentofJulymonth\text{'}spurchases=\$523,600*\text{ 6}0\%\\ PaymentofJulymonth\text{'}spurchases=\$314,160\end{array}$

Total cash disbursements of purchases is calculated as follows-

  $\begin{array}{l}Totalcashdisbursementsofpurchases=PaymentofJunemonth\text{'}spurchases\\ +PaymentofJulymonth\text{'}spurchases\\ Totalcashdisbursementsofpurchases=\$255,200+\$314,160\\ Totalcashdisbursementsofpurchases=\$569,360\end{array}$

Conclusion:

Thus, schedule of expected cash disbursements of purchases is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 5-

To prepare:

Cash Budget

Answer to Problem 7APSA

Aztec Company
Cash Budget
Particulars	June	July
Beginning cash balance	100,000	100,000
Add: Budgeted cash receipts	597,600	820,800
Total cash available	697,600	920,800
Cash Disbursements-
Cash payments for purchases	506,000	569,360
Selling and administrative expenses	110,000	110,000
Total cash disbursements	616,000	679,360
Total cash available over disbursements	81,600	241,400
Loan Activity-
Loan form bank	18,650	0
Interest payment @12% per annum	250	437
Repayment of loan to bank	0	43,650
Ending cash balance	100,000	197,353
Ending loan balance	43,650	0

Explanation of Solution

Given,

Beginning cash balance = $100,000

Budgeted cash receipts- (Calculated in requirement 1)

• June - $597,600
• July - $820,800
Cash payments for purchases- (Calculated in requirement 4)
• June - $506,000
• July - $569,360

  $\begin{array}{l}Sellingandadministrativeexpenses=TotalSellingandadministrativeexpenses/12months\hfill \\ Sellingandadministrativeexpenses=\$1,320.000/12months\hfill \\ Sellingandadministrativeexpenses=\$110,000\hfill \end{array}$

  $Totalcashdisbursements=Cashpaymentsforpurchases+Sellingandadministrativeexpenses$

June-

  $\begin{array}{l}Totalcashdisbursements=\$506,000+\$110,000\hfill \\ Totalcashdisbursements=\$616,000\hfill \end{array}$

July-

  $\begin{array}{l}Totalcashdisbursements=\$569,360+\$110,000\hfill \\ Totalcashdisbursements=\$679,360\hfill \end{array}$

Total cash available over disbursements is calculated as follows-

  $Totalcashavailableoverdisbursements=Budgetedcashreceipts-Totalcashdisbursements$

June-

  $\begin{array}{l}Totalcashavailableoverdisbursements=\$697,600-\$616,000\hfill \\ Totalcashavailableoverdisbursements=\$81,600\hfill \end{array}$

July-

  $\begin{array}{l}Totalcashavailableoverdisbursements=\$920,800-\$679,360\hfill \\ Totalcashavailableoverdisbursements=\$241,440\hfill \end{array}$

Interest payment-

June

Opening balance of Loan = $25,000

  $\begin{array}{l}Interest=\$25,000*1\%\hfill \\ Interest=\$250\hfill \end{array}$

July-

Opening balance of Loan = $43,650

  $\begin{array}{l}Interest=\$43,650*1\%\hfill \\ Interest=\$437\hfill \end{array}$

  $\begin{array}{l}Endingloanbalance=\$25,000+\$18,650\hfill \\ Endingloanbalance=\$43,650\hfill \end{array}$

Conclusion:

Thus, cash budget is prepared.