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Chapter 22: Q35E (page 1238)

Preparing a financial budget鈥攃ash budget

You recently began a job as an accounting intern at Reilly Golf Park. Your first task was to help prepare the cash budget for April and May. Unfortunately, the computer with the budget file crashed, and you did not have a backup or even a paper copy. You ran a program to salvage bits of data from the budget file. After entering the following data in the budget, you may have just enough information to reconstruct the budget.

Reilly Golf Park eliminates any cash deficiency by borrowing the exact amount needed from First Street Bank, where the current interest rate is 6% per year. Reilly Golf Park first pays interest on its outstanding debt at the end of each month. The company then repays all borrowed amounts at the end of the month with any excess cash above the minimum required but after paying monthly interest expenses. Reilly does not have any outstanding debt on April 1.

Complete the cash budget. Round interest expense to the nearest whole dollar.

Short Answer

Expert verified

Total Interest expense in the month of May is $44.

Step by step solution

01

Preparation of schedule of cash budget 

REILLY GOLF PARK

Cash Budget

Two months ended 31 May

April

May

Beginning cash balance

$16,700

$25,000

Cash receipts

$98,000

$79,900

Cash from sale of plant assets

$0

$2,200

Cash available

$114,700

$107,100

LESS: Payments:

Inventory purchase

$51,000

$43,000

Selling and administrative expenses

$47,400

$36,856

Interest expense

$0

$44

Total cash payments

$98,400

$79,900

Ending cash balance before financing

$16,300

$27,200

Minimum cash balance desired

($25,000)

($25,000)

Cash excess (deficiency)

($8,700)

$2,200

Financing:

Borrowing

$8,700

$0

Principal repayments

$0

$2,200

Ending cash balance

$25,000

$25,000

02

Calculation of interest expense for May

Interest expense = cashx rate x Time

= $8,700 x 6% x 1/12

= $44

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Most popular questions from this chapter

Preparing a financial budget鈥攕chedule of cash receipts and schedule of cash payments

Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.

a. Management expects to sell equipment that cost \(14,000 at a gain of \)7,000. Accumulated depreciation on this equipment is \(5,000.

b. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for \)14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.

c. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one-half of commissions and other selling expenses in the month incurred, with the balance paid the following month.

Question: Meeks Company has the following sales for the first quarter of 2019:

January February March Cash sales \( 5,000 \) 5,500 \( 5,250 Sales on account 15,000 14,000 14,500 Total sales \) 20,000 \( 19,500 \) 19,750 Sales on account are collected the month after the sale. The Accounts Receivable balance on January 1 is $12,500, the amount of December鈥檚 sales on account. Calculate the cash receipts from customers for the first three months of 2019.

What is the formula used to determine the number of units to be produced?

In a manufacturing company, what are the three types of budgets included in the master budget? Describe each type.

Question: Preparing a financial budget鈥攕chedule of cash receipts, schedule cash payments, cash budget

Baxter Company鈥檚 budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.
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