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prepare the cash budget for august including the effects of financing borrowing or i 643051

The July 31, 2010, balance sheet for World Windows Inc. includes the following information

Cash

$ 40,000 debit

Accounts Receivable

270,000 debit

Merchandise Inventory

18,000 debit

The firm’s management has designated $35,000 as the firm’s monthly minimum cash balance. Other information about World Windows is as follows:

  • Revenues of $650,000, $720,000, and $825,000 are expected for August, September, and October, respectively. All goods are sold on account.
  • The collection pattern for accounts receivable is 55 percent in the month of sale, 44 percent in the month following the sale, and 1 percent uncollectible.
  • Cost of Goods Sold (CGS) approximates 60 percent of sales revenues.
  • Management wants to end each month with units costing the equivalent of 5 percent of the following month’s CGS. Unit costs are assumed to be stable.
  • All accounts payable for inventory are paid in the month of purchase.
  • Other monthly expenses are $78,000, which includes $12,000 of depreciation but does not include uncollectible accounts expense.
  • Investments of excess cash are made in $5,000 increments.

Required:

a. Forecast the August cash collections.

b. Forecast the August and September cost of purchases.

c. Prepare the cash budget for August including the effects of financing (borrowing or investing).

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