Wednesday, 1 April 2015

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

a. The cash balance on December 1 is $47,000.
b. Actual sales for October and November and expected sales for December are as follows:

  October November December
  Cash sales $ 83,000   $ 79,000   $ 85,600  
  Sales on account   500,000    624,000     674,000  

  
 
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 $372,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $189,500, all of which will be paid in December.
d. Selling and administrative expenses are budgeted at $502,000 for December. Of this amount, $69,000 is for depreciation.
e. A new web server for the Marketing Department costing $88,500 will be purchased for cash during December, and dividends totaling $14,500 will be paid during the month.
f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required:
1. Prepare a schedule of expected cash collections for December.
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Explanation: