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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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
Transcribed Image Text:Kat Ltd.'s September balance sheet contains the following information:
Cash
Accounts receivable.
Allowance for doubtful accounts
Merchandise inventory
$ 37,500 (dr)
126,000 (dr)
2,800 (cr)
26,250 (dr)
Management has designated $37,500 as the firm's minimum monthly cash balance. Other information about the firm and its operations
is as follows:
a. Sales revenues of $350,000, $420,000, and $312,500 are expected for October, November, and December, respectively. All goods
are sold on account.
b. The collection pattern for accounts receivable is 60% in the month of sale, 39% in the month following the month of sale, and 1%
uncollectible, which is set up as an allowance.
c. Cost of goods sold is 60% of sales revenues.
d. Management's target ending balance of merchandise inventory is 10% of the current month's budgeted cost of goods sold.
e. All accounts payable for inventory are paid in the month of purchase.
f. Other monthly expenses are $49,250, which includes $3,500 of depreciation and $2,000 of bad debt expense.
g. In the event of a shortfall, the company borrows money. In contrast, in the event of excess cash, the company invests in short-term
investments. Borrowings and investments are assumed to be made at the end of a month in increments of $6,250.
h. Interest on borrowings is 0% per year, payable every quarter, on the accumulated amount of the loan; similarly, interest earned on
investments is 8% per year on the accumulated investments and is received every quarter. Investments can be matured and the
principal amount redeemed in June or December of a year.
Required:
1. Prepare a merchandise purchases budget for October and November.
Total needs
Kat Ltd.
Merchandise Purchases Budget
October November December

Transcribed Image Text:Mc
Graw
Hill
2. Prepare the cash budgets for October and November, including the effects of financing (borrowing or investing). Interest is earned
or paid quarterly. (Any "Repayments" and "Interest" should be indicated by a minus sign. Leave no cells blank be certain to enter
"0" wherever required.)
Total cash available
Deduct: Disbursements:
Total disbursements
Excess (deficiency) of cash
Financing:
Investments
Borrowings
Repayments
Interest
Total financing
Type here to search
Kat Ltd.
Cash Budget
O
October
Ri
November
Expert Solution
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Follow-up Question
How did you get 109200 and why not use the 126000
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Follow-up Question
can you explain why you used the 2800$
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Follow-up Question
How did you get 109200 and why not use the 126000
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Follow-up Question
can you explain why you used the 2800$
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