Schedule of Cash Payments for a Service Company
SafeMark Financial Inc. was organized on February 28. Projected selling and administrative expenses for each of the first three months of operations are as follows:
Depreciation, insurance, and property taxes represent $35,000 of the estimated monthly expenses. The annual insurance premium was paid on February 28, and property taxes for the year will be paid in June. 63% of the remainder of the expenses are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month.
Prepare a schedule indicating cash payments for selling and administrative expenses for March, April, and May.
|SafeMark Financial Inc.|
|Schedule of Cash Payments for Selling and Administrative Expenses|
|For the Three Months Ending May 31|
|Paid in March||$|
|Paid in April||$|
|Paid in April|
|Paid in May||$|
|Paid in May|
|Total cash payments||$||$||$|
The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
|Selling and administrative expenses||15,000||16,000||22,000|
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $3,500 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets as of May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively. Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma’s regular quarterly dividend of $5,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $30,000.
1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2016. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.
|Sonoma Housewares Inc.|
|For the Three Months Ending July 31|
|Estimated cash receipts from:|
|Collection of accounts receivable|
|Total cash receipts||$||$||$|
|Estimated cash payments for:|
|Selling and administrative expenses|
|Total cash payments||$||$||$|
|Cash increase or (decrease)||$||$||$|
|Cash balance at beginning of month|
|Cash balance at end of month||$||$||$|
|Minimum cash balance|
|Excess or (deficiency)||$||$||$|
Answer to Question 1:
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