Exercise 713A Preparing a cash budget LO 75 The accountant f

Exercise 7-13A Preparing a cash budget LO 7-5 The accountant for Fanning\'s Dress Shop prepared the following cash budget. Fanning\'s desires to maintain a cash cushion of $19,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 1 percent per month. Required a. Complete the cash budget by filling in the missing amounts. b. Determine the amount of net cash flows from operating activities Fanning\'s will report on the third quarter pro forma statement of cash flows c. Determine the amount of net cash flows from financing activities Fanning\'s will report on the third quarter pro forma statement of cash flows.

Solution

Requirement A: Cash budget July August   September Section 1:Cash receipts Beginning cash balance $ 45,000 $ 19,000 $ 19,000 Add:cash receipts        1,85,000        2,05,000          2,45,600 Total cash balance        2,30,000        2,24,000          2,64,600 Section 2:Cash payments For inventory purchases        1,68,026        1,42,730          1,76,652 For S&A expenses            57,000            63,060             63,932 For Interest expenses 0 140 150 Total budgeted disbursement        2,25,026        2,05,930          2,40,734 Section 3:Financing Activities Surplus(Shortage)              4,974            18,070             23,866 Borrowing(Repayment)            14,026 930              -4,866 Ending Cash Balance            19,000            19,000             19,000 Working: Interest expenses for August = Borrowing * Monthly Interest rate = $        14,026 x 1% = $ 140 Interest expenses for September = Borrowing * Monthly Interest rate = (14026+930)x 1% = $ 150 Borrowing for July = Required ending Balance-surplus = $        19,000 - $ 14,026 = $          4,974 Borrowing for August = Required ending Balance-surplus = $        19,000 - $ 18,070 = $ 930 Repayment for September = Surplus-Required Ending Cash Balance = $        23,866 - $ 19,000 = $          4,866 Requirement B& C: Cash flow from operating acivities and financing activities Cash budget July August   September Total Section 1:Cash receipts Beginning cash balance $        45,000 $        19,000 $         19,000 Add:cash receipts        1,85,000        2,05,000          2,45,600 $ 6,35,600 Total cash balance        2,30,000        2,24,000          2,64,600 Section 2:Cash payments For inventory purchases        1,68,026        1,42,730          1,76,652 $ 4,87,408 For S&A expenses            57,000            63,060             63,932 $ 1,83,992 For Interest expenses 0 140 150 $ 290 Total budgeted disbursement        2,25,026        2,05,930          2,40,734 Section 3:Financing Activities Surplus(Shortage)              4,974            18,070             23,866 Borrowing(Repayment)            14,026 930              -4,866 $     10,090 Ending Cash Balance            19,000            19,000             19,000 Cash flow from operating activities: Cash receipts from customer $    6,35,600 Cash payment for : Inventory purchases $ -4,87,408 For S& A Expenses $ -1,83,992 Net Cash flow from operating activities $      -35,800 Cash flow from financing activities: Amount borrowed $        14,956 Interest Paid $            -290 Amount repaid $        -4,866 Cash flow from financing activities $          9,800 Requirement B: Net Cash (Operating Activities) $      -35,800 Requirement C: Net Cash (Financing Activities) $          9,800