Chapter 8, Problem 21P

Schedules of Expected Cash Collections and Disbursements L08—2, L08—4, L08—8
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available aboutthe company’s operations:
a. The cash balance on December 1 is $40,000.
b. Actual sales for October and November and expected sales for December are as follows

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.
c. Purchases of inventory will total %280,000 for December. Thirty percent of a month’s inventorypurchases are paid during the month ofpurchase. The accounts payable remaining from November’s inventory purchases total $161,000, all of which will be paid in December.
d. Selling and administrative expenses are budgeted at $430000 for December. Of this amount, $50,000 is for depreciation.
e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000will be paid during the month.
£ The company maintains a minimum cash balance of S20000. An open line of credit is available from the company’s bank to increase itscash balance as needed.
Required:
1. Calculate the expected cash collections for December.
2. Calculate the expected cash disbursements for merchandise purchases for December.
3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest willnot be paid until the following month.