ACCT504 Practice Case Study 3 on Cash Budgeting

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ACCT504PracticeCase Study3 on Cash BudgetingThis is a practice case study to help you become familiar with how to create acomprehensive cash budget. The cash budget relates to TCO D and is discussed inChapter4.Theactualcase studyassignmentshould be uploadedto the Week 6 AssignmentDropboxby 11:59p.m.mountain timeonSundayat the end ofWeek 6.You areencouraged to use theExceltemplate file provided in Doc Sharing.The CambridgeCompany has budgeted sales revenues as follows.JanFebMar__Credit sales$45,000$36,000$27,000Cash sales27,00076,50058,500Total sales$72,000$112,500$85,500Past experience indicates that 60% of the credit sales will be collected in the month ofsale and the remaining 40% will be collected in the following month.Purchases of inventory are all on credit;40% is paid in the monthof purchase and 60%in the month following purchase.Budgeted inventory purchases are $97,500 in January,$67,500 in February, and $31,500 in March.Other budgeted cashreceipts:(a) sale of plant assets for $18,525 in February, and (b)sale of new commonstock for $25,275 in March.Other budgeted cash disbursements:(a) operating expenses of $10,125each month, (b) selling and administrative expensesof $18,750each month, (c) dividendsof $28,500 will be paid in February, and (d)purchase ofequipmentfor $9,000 cash in March.The company has a cash balance of$15,000 at the beginning of Februaryand wishesto maintain a minimum cash balance of $15,000 at the end of each month.An open lineof credit is available at the bank and carriesan annual interest rate of 12%.Assume thatall borrowing is done on the first day of the month in which financing is needed and thatall 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 February1.Requirements:1.Use this information to prepare acashbudget for the months ofFebruary and March,using the template provided in DocSharing.Answer:February:•Beginning Cash Balance: $15,000

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