ACCT504 Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D and you read
Chapter 7. There is also a practice case study to work on. Your professor will provide
the solution to the practice case study at the end of Week 5. This case study should be
uploaded by 11:59 p.m. mountain time on Sunday at the end of Week 6 to the Week 6
Assignment Dropbox. You are encouraged to use the Excel template file provided in
Doc Sharing.
The LBJ Company has budgeted sales revenues as follows.
Credit sales
Cash sales
Total sales
April
$94,000
48,000
$142,000
May
$89,500
75,000
$164,500
June
$75,000
57,000
$132,000
Past experience indicates that 30% of the credit sales will be collected in the month of
sale and the remaining 70% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase and
60% in the month following purchase. Budgeted inventory purchases are $195,000 in
April, $135,000 in May, and $63,000 in June.
Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b) sale
of new common stock for $50,000 in June. Other budgeted cash disbursements: (a)
operating expenses of $15,000 each month, (b) selling and administrative expenses of
$10,150 each month, (c) purchase of equipment for $35,000 cash in May, and (d)
dividends of $20,000 will be paid in June.
The company has a cash balance of $20,000 at the beginning of May and wishes to
maintain a minimum cash balance of $20,000 at the end of each month. An open line of
credit is available at the bank and carries an annual interest rate of 10%. Assume that
all borrowing is done on the first day of the month in which financing is needed and that
all repayments are made on the last day of the month in which excess cash is available.
Also assume that there is no outstanding financing as of May 1.
Requirements:
1. Use this information to prepare a cash...