This assignment will require you to prepare the cash budget and determine the cash surplus and shortage each month.

The management estimates total sales for the period January through July based on actual sales from the immediate past quarter. The following assumptions are made:

Sales: Past and Expected

Historical                            Forecast

October $300,000            January $150,000

November $350,000        February $200,000

December $400,000        March $200,000

April $300,000

May $250,000

June $200,000

July $300,000

a. 25% of the Sales will be collected in the same month of the Sale. 60% of the Sales will be collected one month following the sale. 10% will be collected two months following the sale. The remainder will be collected three months following the sale. Bad debts are insignificant.

b. Purchases are 80% of sales and are paid in the same month.

c. Wages and salaries are as follows:

January $30,000

February $40,000

March $50,000

April $50,000

May $40,000

June $35,000

Wages and salaries are paid in the same month.

d. Rent is $10,000 per month. Rent is paid in the same month.

e. The company issued $500,000 bonds, paying annual coupon rate of 5%. Interest on these bonds is paid at the end of each calendar quarter. Hint: Firsts, calculate the coupon interest amount for each quarter. Then, this quarterly interest amount will be paid at the end of each calendar quarter.

f. A tax prepayment of $75,000 is paid in April.

g. Machinery worth $35,000 will be purchased in March.

h. Cash on hand on January 1st will amount to $100,000 and a minimum cash balance of $100,000 each month will be maintained throughout the period.

1. Prepare cash budget from January to June.

2. Determine the cash surplus and shortages for each month from January to June.