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Problem: Cash Budget
In the fourth quarter of 2017, Eurofit Cycling, a bike shop, had the following net income:
Sales
$550,000
Less cost of sales
250,000
Gross margin
300,000
Selling and administrative
70,000
Income before taxes
230,000
Income taxes
80,500
Net income
$ 149,500
Purchases in the fourth quarter amounted to $195,000. Estimated data for Eurofit Cycling for 2018 are as follows:
Quarter 1
Quarter 2
Quarter 3
Quarter 4
$400,000
$475,000
$600,000
Cost of Sales
170,000
185,000
220,000
Purchases
160,000
200,000
225,000
267,000
Selling and Administration
67,000
69,000
71,000
73,000
Taxes are 35 percent of pretax income and are paid in the quarter incurred. Fifty percent of sales are collected in the quarter of sale and 50 percent are collected in the next quarter. Seventy percent of purchases are paid in the quarter of purchase and 30 percent are paid in the next quarter. Selling and administrative expenses are paid in the quarter incurred except for $7,000 of depreciation included in selling and administrative expense. A capital expenditure for $20,000 is planned for the fourth quarter of 2018.
Prepare a cash budget for each quarter of 2018.
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