ACCT504 Practice Case Study 3 on Cash Budgeting

This is a practice case study to help you become familiar with how to create a comprehensive cash budget. The cash budget relates to TCO D and is discussed in Chapter 4. The actual case study assignment should be uploaded to the Week 6 Assignment Dropbox by 11:59 p.m. mountain time on Sunday at the end of Week 6. You are encouraged to use the Excel template file provided in Doc Sharing. The Cambridge Company has budgeted sales revenues as follows. Jan $45,000 27,000 $72,000 Feb $36,000 76,500 $112,500 Mar__ $27,000 58,500 $85,500

Credit sales Cash sales Total sales

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit; 40% is paid in the month of 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 cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements: (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March. The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. 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 February 1. Requirements: 1. Use this information to prepare a cash budget for the months of February and March, using the template provided in Doc Sharing. Please note: This is not a graded assignment, so your instructor will share the solution for this practice exercise. It is highly recommended that you try to build the cash budget on your own first.