Homework SourseCastor Inc is preparing its master budget for the quarter en
Castor, Inc. is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow:
Sales are 80% cash and 20% on credit. All credit sales are collected in the month following the sale. The March 30 balance sheet includes balances of $14,000 in cash, $14,000 in accounts receivable, $11,000 in accounts payable, and a $4,000 balance in loans payable. A minimum cash balance of $14,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), shipping (4% of sales), office salaries ($5,000 per month) and rent ($7,000 per month).
Prepare a cash budget for each of the months of April, May, and June.
| April | May | June | ||||
| Budgeted sales | $ | 30,000 | $ | 42,000 | $ | 26,000 |
| Budgeted cash payments for merchandise | 24,200 | 14,800 | 13,500 | |||
Solution
Answer:
2) Calculation of Interest on Borrowings
Interest on Borrowing for April month = Loans payable x 1% = $4000 x 1% = $40
Interest on Borrowings for May Month = Loans Payable as on May 1 x 1% = ($4,000 + $2,360) x 1% = $63.60
3) Repayment of Borrowing including Interest
Surplus Cash in May = $6,920 ($20,920 - $14,000)
Loan Outstanding as on May 31 = $4,000 + $2,360 = $6,360
Interest Payment = $63.60
Total Amount including Interest and Loan Payable = $6,360 + $63.60 = $6,423.60
| Castor Inc. | ||||
| Cash Budget for the months of April, May and June | ||||
| Particulars | April | May | June | |
| A. | Opening Cash Balance | $14,000 | $14,000 | $14,560 |
| Receipts | ||||
| B. | Cash Collection from Customer (Note 1) | $38,000 | $39,600 | $29,200 |
| C | Total Available Cash before payment / rembursement of expenses (A+B) | $52,000 | $53,600 | $43,760 |
| Payments: | ||||
| Cash Payment for Merchandise | $24,200 | $14,800 | $13,500 | |
| Sales Commission (10% of Sales) | $3,000 | $4,200 | $2,600 | |
| Shipping Expenses (4% of Sales) | $1,200 | $1,680 | $1,040 | |
| Office Salaries | $5,000 | $5,000 | $5,000 | |
| Rent | $7,000 | $7,000 | $7,000 | |
| D | Total Cash Payments / Expenses | $40,400 | $32,680 | $29,140 |
| E | Surplus / (Shortage) of Cash after payment of cash expenses (C-D) | $11,600 | $20,920 | $14,620 |
| F | Minimum Required Cash Balance | $14,000 | $14,000 | $14,000 |
| G | Interest on Borrowing (note 2) | $40 | $63.60 | $0 |
| H | Borrowing from Bank (F-E-G) | $2,360 | $0 | $0 |
| I | Less: Repayment of Borrowing including interest to Bank (F) (Note 3) | $0 | ($6,423.60) | $0 |
| J | Closing Cash Balance (E+G+H-I) | $14,000 | $14,560.00 | $14,620 |
