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Cash Budget with Supporting Schedules

(2) First quarter disbursements: $111,000
(3) First quarter ending cash balance: $31,400

Colormania is a wholesale distributor of dyes and pigments. When the treasurer of Colormania approached the company's bank late in the current year seeking short-term financing, he was told that money was very tight and that any borrowing over the next year would have to be supported by a detailed statement of cash collections and disbursements. The treasurer also was told that it would be very helpful to the bank if borrowers would indicate the quarters in which they would be needing funds, as well as the amounts that would be needed, and the quarters in which repayments could be made.

Since the treasurer is unsure as to the particular quarters in which the bank financing will be needed, he has assembled the following information to assist in preparing a detailed cash budget:
a. Budgeted sales and merchandise purchases for next year, as well as actual sales and purchases for the last quarter of the current year, are:

Sales Merchandise Purchases
Current year:
Fourth quarter actual $600,000 $456,000
Next year:
First quarter estimated $640,000 $483,000
Second quarter estimated $660,000 $493,500
Third quarter estimated $650,000 $480,000
Fourth quarter estimated $600,000 $456,000

b. The company normally collects 75% of a quarter's sales before the quarter ends and another 20% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the current year's fourth-quarter actual data.
c. 80% of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid in the following quarter.
d. Selling and administrative expenses for next year are budgeted at $70,000 per quarter plus 10% of sales. Of the fixed amount, $23,000 each quarter is depreciation.
e. The company will pay $5,000 in dividends each quarter.
f. Land purchases of $26,000 will be made in the second quarter, and equipment purchases of $19,000 will be made in the third quarter. These purchases will be for cash.
g. The Cash account contained $25,000 at the end of the current year. The treasurer feels that this represents a minimum balance that must be maintained.
h. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each quarter, up to a total of $10,000. The interest rate on these loans is 1% per quarter and for simplicity we will assume the interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the year.
i. At present, the company has no loans outstanding.


1.Prepare the following by quarter and in total for next year:
a.A schedule of expected cash collections.
b.A schedule of expected cash disbursements for merchandise purchases.

2.Compute the expected cash payments for selling and administrative expenses, by quarter and in total, for next year.

3.Prepare a cash budget, by quarter and in total, for next year.

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Solution Summary

Cash Budget with supporting schedules.