The management accountant at Miller Merchandising & More, Odail Russell is in the process of preparing the cash budget for the business for the fourth quarter of 2021

The management accountant at Miller Merchandising & More, Odail Russell is in the process of preparing the cash budget for the business for the fourth quarter of 2021. It is customary for the business to borrow money during this quarter. Extracts from the sales and purchases budgets are as follows: Month Cash Sales Sales On Account Purchases August September October November December $85,000 $70,000 $88,550 $77,160 $174,870 $640,000 $550,000 $600,000 $800,000 $500,000 $420,000 $550,000 $500,000 $600,000 $450,000 i) An analysis of the records shows that trade receivables are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: 50% in the month of sale 30% in the first month following the sale 20% in the second month following the sale ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on account. Accounts payable are settled as follows, in accordance with the credit terms – 2/30, n60: 60% in the month in which the inventory is purchased 40% in the following month iii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $1,680,000 per annum, (including depreciation on non-current assets of $420,000 per annum) and is settled monthly. iv) Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly. v) Other operating expenses are expected to be $108,000 per quarter and will be settled monthly. vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an employee at a gain of $30,000. Accumulated depreciation on the motor vehicle at that time is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in November and the balance settled in two equal amounts in December 2021 & January of 2022. vii) Computer equipment, which is estimated to cost $320,000, will be acquired in November. The manager has made arrangements with the dealer to make a cash deposit of 50% of the amount upon signing of the agreement in November, with the balance to be settled in four equal monthly instalments, starting in December 2021 viii) The management of Miller Merchandising Company has negotiated with a tenant to rent office space to her beginning November 1. The rental is $624,000 per annum. The first month’s rent along with one month’s safety deposit is expected to be collected on November 1. Thereafter, monthly rental income becomes due at the beginning of each month. Continued………………………..PART 2_ FINAL ASSESSMENT _APRIL 2021 “Those who fail to prepare, are preparing to fail” Uriel Salmon Page 3 Continued…………………………………… ix) Taxation of $85,000 has to be settled in December. x) A money market instrument purchased by the company with a face value of $300,000 will mature on October 15, 2021. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5% per annum is also expected to be collected. xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,000. Required: (a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following: ▪ A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months October to December. ▪ A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December. ▪ A cash budget, with a total column, for the quarter ending December 31, 2021, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place.

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