Finance-FIN 5130 Quiz 5 Extra Credit

| January 30, 2017

Question
FIN 5130
Quiz 5 Extra Credit

Instructor: Dr. Palkar

Late assignments will not be accepted so please plan accordingly. You need to show
your working notes for credit. You must submit your work using excel files (with
.xls or .xlsx for credit). You must upload your files on Blackboard under the
Assignment Dropbox for credit.
This assignment will require you to prepare the cash budget and determine the cash
surplus and shortage each month.
The management estimates total sales for the period January through July based on actual
sales from the immediate past quarter. The following assumptions are made:
Sales: Past and Expected
Historical

Forecast

October
$300,000 January
November $350,000 February
December $400,000 March
April
May
June
July

$150,000
$200,000
$200,000
$300,000
$250,000
$200,000
$300,000

a. Sales are 75% on credit basis and 25% on cash basis. 60% of credit sales are
collection one month after sale, 30% in the second month, and 10% in the third
month. Bad debts are insignificant.
b. Purchases are 80% of sales and are paid as follows: 50% of sales are paid in the same
month and the remaining 50% are paid in the following month.
c. Wages and salaries are as follows:
January
February
March
April
May
June

d.
e.
f.
g.
h.

$30,000
$40,000
$50,000
$50,000
$40,000
$35,000

Rent is $2,000 per month
Interest on $500,000 of 16% bonds is due on the calendar quarter.
A tax prepayment of $50,000 is due in April.
A capital addition of $30,000 is planned in June.
The company has a cash balance of $100,000 on January 1st, which is the minimum
balance maintained each month.

1. Prepare cash budget for Jan to June.
2. Determine the cash surplus and shortages for each month.

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