Reference no: EM132559013

Haverford Company has the following information related to preparing the first quarter 2021 Cash Budget.

a. Budgeted Sales and Budgeted Purchases for 2021 are detailed below:

                                Sales                    Material Purchases

4th Quarter 2020           $310,000                $180,000

1st Quarter 2021          $575,000                 $245,000

2nd Quarter 2021            $525,000                $325,000

3rd Quarter 2021                 $595,000              $360,000

4th Quarter 2021                 $450,000                  $220,000

The company collects 35% of sales immediately. The remaining 65% is collected in the quarter following the sale. In addition 20% of purchases are paid for immediately. The remainder are paid for in the quarter following the sale.

b. Labor costs are fixed at $58,000 per quarter.

c. Selling and Administrative expenses are $80,000 per quarter plus 10% of sales. Included in the $80,000 is depreciation of $15,000.

d. Haverford has historically paid $6,000 in cash dividends each quarter.

e. The company plans to purchase new equipment in 2021 using cash on hand. The equipment will cost $100,000. The company will pay $60,000 in the 1st quarter and $40,000 in the 2nd quarter.

f. The cash account began 2021 with a balance of $22,000. The company must maintain a minimum balance of $18,000.

Required:

Question 1: Prepare the Cash Budget with supporting schedules for cash collections and cash disbursements for the FIRST QUARTER ONLY.

Question 2: Do you recommend the equipment purchase? Write a email to the president of the company with your recommendations.

Question 3: Calculate the 12/31/21 ending balance of Accounts Receivable and Accounts Payable.