a. Prepare a cash budget and determine the projected ending cash balances for the first three months of Year 2. b. Determine the months that the company would either borrow or invest cash. ANS: a. Year 1 Year 2 Nov. Dec. Jan. Feb. Mar. Sales $80,000 $90,000 $70,000 $90,000 $30,000 Purchases 70,000 80,000 70,000 60,000 50,000 Jan. Feb. Mar. Cash Receipts: Beginning cash balance $ 4,500 $ 2,600 $ 300 From current month sales $28,000 $36,000 $12,000 From prior month sales 54,000 42,000 54,000 cash receipts $82,000 $78,000 $66,000 Total cash available $86,500 $80,600 $66,300 Cash Disbursements: From Purchases: Current @ 20% $14,000 $12,000 $10,000 From 1 mo. purchases @ 50% 40,000 35,000 30,000 From 2 mo. prior purchases @ 30% 21,000 24,000 21,000 Total payments on purchases $75,000 $71,000 $61,000 expense 4,000 4,000 4,000 salaries 2,000 2,000 2,000 Commissions @ 2% of sales 1,400 1,800 600 Other expenses exclude depr. ($500) 1,500 1,500 1,500 Total cash disbursements $83,900 $80,300 $69,100 Ending cash balance $ 2,600 $ 300 $(2,800) b. Borrow-March; invest-January and February DIF: Difficult
a. Prepare a cash budget and determine the projected ending cash balances for the first three months of Year 2. b. Determine the months that the company would either borrow or invest cash. ANS: a. Year 1 Year 2 Nov. Dec. Jan. Feb. Mar. Sales $80,000 $90,000 $70,000 $90,000 $30,000 Purchases 70,000 80,000 70,000 60,000 50,000 Cash Receipts: Jan. Feb. Mar. Beginning cash balance $ 4,500 $ 2,600 $ 300 From current month sales $28,000 $36,000 $12,000 From prior month sales 54,000 42,000 54,000 cash receipts $82,000 $78,000 $66,000 Total cash available $86,500 $80,600 $66,300 Cash Disbursements: From Purchases: Current @ 20% $14,000 $12,000 $10,000 From 1 mo. purchases @ 50% 40,000 35,000 30,000 From 2 mo. prior purchases @ 30% 21,000 24,000 21,000 Total payments on purchases $75,000 $71,000 $61,000 expense 4,000 4,000 4,000 salaries 2,000 2,000 2,000 Commissions @ 2% of sales 1,400 1,800 600 Other expenses exclude depr. ($500) 1,500 1,500 1,500 Total cash disbursements $83,900 $80,300 $69,100 Ending cash balance $ 2,600 $ 300 $(2,800) b. Borrow-March; invest-January and February DIF: Difficult
Ch08%20The%20Master%20Budget.docx