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ACCT504 Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D and you read Chapter 7. There is also a practice case study to work on. Your professor will provide the solution to the practice case study at the end of Week 5. This case study should be uploaded by 11:59 p.m. mountain time on Sunday at the end of Week 6 to the Week 6 Assignment Dropbox. You are encouraged to use the Excel template file provided in Doc Sharing. The LBJ Company has budgeted sales revenues as follows. April May JuneCredit sales $94000 $89500 $75000Cash sales 48000 75000 57000Total sales $142000 $164500 $132000Past experience indicates that 30% of the credit sales will be collected in the month 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 purchase and 60% in the month following purchase. Budgeted inventory purchases are $195000 in April $135000 in May and $63000 in June.Other budgeted cash receipts: (a) sale of plant assets for $33000 in May and (b) sale of new common stock for $50000 in June. Other budgeted cash disbursements: (a) operating expenses of $15000 each month (b) selling and administrative expenses of $10150 each month (c) purchase of equipment for $35000 cash in May and (d) dividends of $20000 will be paid in June.The company has a cash balance of $20000 at the beginning of May and wishes to maintain a minimum cash balance of $20000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 10%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of May 1.Requirements:1. Use this information to prepare a cash budget for the months of May and June using the template provided in Doc Sharing.2. What are the three sections of a cash budget and what is included in each section?3. Why is a cash budget so vital to a company?4. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash?Grading Rubric for Cash Budget Case StudyCategoryPoints%DescriptionDocumentation and Formatting610%Case Study worksheet will be done in Excel and will contain formulas to receive maximum credit.Organization and Cohesiveness610%A quality solution will include the content properly organized in accordance with the instructions provided. The cash budgets will be complete and the analysis will be consistent with the cash budgets presented.Editing610%Quality work will be free of any mathematical spelling punctuation or grammatical errors. Sentences and paragraphs (where appropriate) will be clear concise and factually correct.Content4270%A quality project will have all required work completed and will be correct.Total60100%A quality project will meet or exceed all of the requirements.
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