Hugo Medical Supply has applied for a loan. Pacific Commerce Bank has requested

Question

Hugo Medical Supply has applied for a loan. Pacific Commerce Bank has requested a budgeted balance sheet as of April 30 and a combined cash budget for April. As Hugo Medical Supply's controller, you have assembled the following information: (a) March 31 equipment balance, $52,600; accumulated depreciation, $41,300 (b) April capital expenditures of $42,400 budgeted for cash purchase of equipment (c) April depreciation expense, $700 (d) Cost of goods sold, 60% of sales (e) Other April operating expenses, including income tax, total $14,200, 35% of which will be paid in cash and the remainder accrued at April 30 (f) March 31 owners' equity, $92,600 (g) March 31 cash balance, $40,300 (h) April budgeted sales, $90,000, 70% of which is for cash. Of the remaining 30%, half will be collected in April and half in May. (i) April cash collections on March sales, $29,100 (j) April cash payments of March 31 liabilities incurred for March purchases of inventory, $17,300 (k) March 31 inventory balance, $29,200 (l) April purchases of inventory, $10,700 for cash and $36,300 on credit. Half of the credit purchases will be paid in April and half in May. Before granting a loan to Hugo Medical Supply, Pacific Commerce Bank asks for a sesitivity analysis assuming that Aptil sales are only $60,000 rather than the $90,000 originally budgeted. (While the cost of goods sold will change, assume that purchases, depreciation, and the other operating expenses will remain the same.) (1) Prepare a budgeted balance sheet for Hugo Medical Supply, showing separate computations for cash, inventory, and owners' equity balances. (2) Suppose Hugo Medical Supply has a minimum deisred cash balance of $25,000. Will the company need to borrow money in April?

Explanation / Answer

1.

Working:

2. the company does not need to borrow money in April, as there is sufficient cash balance.

If the sales are only $60,000

Budgeted Balance Sheet Assets Cash 52380 Accounts Receivable 13500 Inventory 22200 Equipment 95000 Less: Accumulated depreciation 42000 53000 Total Assets 141080 Liabilities Accounts Payable 18150 Accured expenses 9230 Total liabilities 27380 Owners' Equity 113700 Total liabilities and owners' Equity 141080 Accoutns Receivable Beginning 29100 Add: Sales 90000 Total 119100 Less: Collections 105600 Ending balance 13500 Inventory Beginning 29200 Add: Purchases 47000 Total 76200 Less: Cost of goods sold 54000 Ending balance 22200 Accounts Payable Beginning 17300 Add: Purchases 36300 Total 53600 Less: Payments 35450 Ending balance 18150 Equipment Beginning 52600 Add: Purchases 42400 Ending balance 95000 Accumulated Depreciation Beginning 41300 Add: Depreciation expense 700 Ending balance 42000 Owners' Equity Beginning 92600 Add: net Income 21100 Ending 113700

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