Acct504 week 6 case study 3 on cash budgetingDocument Transcript
ACCT504 Week 6 Case Study 3 on Cash Budgeting PLEASE DOWNLOAD HEREAcct504 (FI504) Case Study 3 on Cash BudgetingThe cash budget was covered during Week 4 when we covered TCO D and youread Chapter 7. There is also a practice case study to work on. Your Professorwill provide the solution to the practice case study at the end of Week 5. Thiscase study should be uploaded by 11:59PM Mountain time of the Sunday endingWeek 6 to the Week 6 Assignment Dropbox. You are encouraged to use theExcel template file provided in Doc Sharing.The LBJ Company has budgeted sales revenues as follows:April May JuneCredit sales $94,000 $89,500 $75,000Cash sales 48,000 75,000 57,000Total sales $142,000 $164,500 $132,000Past experience indicates that 30% of the credit sales will be collected in themonth of sale and the remaining 70% will be collected in the following month.Purchases of inventory are all on credit and 40% is paid in the month of purchaseand 60% in the month following purchase. Budgeted inventory purchases are$195,000 in April, $135,000 in May, and $63,000 in June.Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b)sale of new common stock for $50,000 in June. Other budgeted cashdisbursements: (a) operating expenses of $15,000 each month, (b) selling andadministrative expenses of $10,150 each month, (c) purchase of equipment for$19,000 cash in June, and (d) dividends of $20,000 will be paid in June.The company has a cash balance of $20,000 at the beginning of May and wishesto maintain a minimum cash balance of $20,000 at the end of each month. Anopen line of credit is available at the bank and carries an annual interest rate of10%. Assume that all borrowing is done on the first day of the month in whichfinancing is needed and that all repayments are made on the last day of themonth in which excess cash is available. Also assume that there is nooutstanding financing as of May 1.Requirements:
1. Use this information to prepare a Cash Budget for the months of May andJune, using the template provided in Doc Sharing.2. What are the three sections of a Cash Budget, and what is included in eachsection?3. Why is a Cash Budget so vital to a company?4. What are the five basic principles of cash management that a company canfollow in order to improve its chances of having adequate cash?