State whether the following statements are true or false. Explain your answer.

(i) A cash budget will reflect expected changes in working capital.
(ii) A company’s plan for the purchases of long-term assets is part of the financial budget.
(iii) The capital expenditure budget is used in preparing the budgeted income statement. (5 marks)


(b) Gail Porter, the management accountant at Tobago Ice is in the process of preparing the cash budget for the business for the second quarter ending June 30, 20X6. She has received the following information concerning sales and purchases:

Sales Purchases
February $240,000 $144,000
March 300,000 180,000
April 360,000 216,000
May 320,000 192,000
June 400,000 250,000

Additional information is also available:

o All of Tobago Ice’s sales are made on credit and the collection of accounts receivable have the following trend:
• 50% collected in the month of sale
• 30% collected in the month following sale
• 20% collected two months following sale

o Seventy percent (70%) of monthly purchases is paid in the following month and a 10% cash discount is received. The remaining 30% will be paid two months following the purchase.

o Tobago Ice plans to dispose of one of its freezers in June 20X6 for $70,000 and at the same time will also purchase a new freezers for $430,000.

o The Tax Authority requires all businesses to pay over consumption taxes one month after the sale of goods and services. The rate of this tax is 2% of monthly sales.

o A money market instrument purchased by Tobago Ice with a face value of $50,000 will mature on April 15, 20X6. On that date quarterly interest computed at a rate of 10% per annum will also be paid.

o It is projected that Tobago Ice will incur operating cost of $15,000, $12,000 and $18,000 for the months of April, May and June 20X6 respectively. This cost is paid in the month that it is incurred and one-third of the cost is comprised of depreciation.

o Tobago Ice will donate $3,000 in May 20X6 to the scholarship fund of the neighbourhood’s secondary school.

o Debts of $7,500 owed to Tobago Ice by customers are to be written off as bad during April 20X6.

o Monthly rental is received from a tenant for factory space leased by Tobago Ice. The annual rental is $180,000 and is received in the month that it is earned.

o The cash balance on April 1, 20X6 is expected to be an overdraft of $240,000.

Required:
(i) Prepare a debtors collection schedule for the quarter ending June 30, 20X6.
(ii) Prepare a creditors payment schedule for the quarter ending June 30, 20X6.
(iii) Prepare a cash budget for the quarter ending June 30, 20X6 with a total column.

NEED SOME MAJOR HELP!

morgaine300

Well, you also have a major big problem here with a lot of pieces to it. We're not here to do your homework for you, so if you've done any work on this, you need to post it and we can check it. Otherwise, we need a starting point. There's a lot here and it would be difficult to do this whole thing from scratch in a forum situation like this. (Just as a clue, I could sit in person and work for an hour with someone on one of these.)

The one hint I can give you is not to freak over all of the information you're given. No one can just do this all at once. You have to take everything one piece at a time and work on just that piece. Read carefully, phrase by phrase, to see what they're telling you to do. i.e. it says all sales are on credit. And then say 50% are collected in the month of the sale. So which month are you in, and how much was sales, and what's 50% of it? Etc.

At least make an attempt to do parts of this to give us something to go on. Some of this stuff is actually easy if you don't let yourself get freaked out over it. That is, some of the items don't need "figured out" -- they just need put in the correct month.