Washington Company's balance sheet as of December 31, 2013 is provided below:
In anticipation of preparing the operating budget for the upcoming period, the firm's accountant has gathered the following information:
(a) Sales are budgeted at $320,000 for January 2014. Of these sales, half will be cash sales and half will be credit sales. Eighty percent of the credit sales are collected in the month of sale and the remainder is collected in the next month. Therefore, all of the December 31 receivables will be collected in January.
(b) Inventory purchases are expected to total $200,000 during January, all on account. Sixty percent of all purchases are paid for in the month of purchase and the remainder is paid in the following month. Therefore, all of the December 31 accounts payable will be paid during January. The inventory account is expected to have a $40,000 balance at January 31, 2014.
(c) Selling and administrative expenses for January are budgeted at $100,000 (exclusive of depreciation). S&A expenses are paid in cash. Depreciation is budgeted at $3,000 for the month.
(d) The notes payable will be paid in April. There is no cash outflow related to the note in January.
The sales manager wishes to purchase a new display case for the showroom during January if sufficient funds are available. The equipment has a cost of $9,000.
Required:
Can the company afford to purchase the display equipment without additional borrowing? Prepare a cash budget for January 2014 to support your answer. Be sure to show your computations.

Question

Washington Company's balance sheet as of December 31, 2013 is provided below:  
In anticipation of preparing the operating budget for the upcoming period, the firm's accountant has gathered the following information:
(a) Sales are budgeted at $320,000 for January 2014. Of these sales, half will be cash sales and half will be credit sales. Eighty percent of the credit sales are collected in the month of sale and the remainder is collected in the next month. Therefore, all of the December 31 receivables will be collected in January.
(b) Inventory purchases are expected to total $200,000 during January, all on account. Sixty percent of all purchases are paid for in the month of purchase and the remainder is paid in the following month. Therefore, all of the December 31 accounts payable will be paid during January. The inventory account is expected to have a $40,000 balance at January 31, 2014.
(c) Selling and administrative expenses for January are budgeted at $100,000 (exclusive of depreciation). S&A expenses are paid in cash. Depreciation is budgeted at $3,000 for the month.
(d) The notes payable will be paid in April. There is no cash outflow related to the note in January.
The sales manager wishes to purchase a new display case for the showroom during January if sufficient funds are available. The equipment has a cost of $9,000.
Required:
Can the company afford to purchase the display equipment without additional borrowing? Prepare a cash budget for January 2014 to support your answer. Be sure to show your computations.

Quizplus · Accepted Answer

The Answer of Washington Company's balance sheet as of December 31, 2013 is provided below:  
In anticipation of preparing the operating budget for the upcoming period, the firm's accountant has gathered the following information:
(a) Sales are budgeted at $320,000 for January 2014. Of these sales, half will be cash sales and half will be credit sales. Eighty percent of the credit sales are collected in the month of sale and the remainder is collected in the next month. Therefore, all of the December 31 receivables will be collected in January.
(b) Inventory purchases are expected to total $200,000 during January, all on account. Sixty percent of all purchases are paid for in the month of purchase and the remainder is paid in the following month. Therefore, all of the December 31 accounts payable will be paid during January. The inventory account is expected to have a $40,000 balance at January 31, 2014.
(c) Selling and administrative expenses for January are budgeted at $100,000 (exclusive of depreciation). S&A expenses are paid in cash. Depreciation is budgeted at $3,000 for the month.
(d) The notes payable will be paid in April. There is no cash outflow related to the note in January.
The sales manager wishes to purchase a new display case for the showroom during January if sufficient funds are available. The equipment has a cost of $9,000.
Required:
Can the company afford to purchase the display equipment without additional borrowing? Prepare a cash budget for January 2014 to support your answer. Be sure to show your computations.

Washington Company's Balance Sheet as of December 31, 2013 Is