Bernard Creighton is the controller for Creighton Hardware Store. In putting tog

Question

Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data.

Sales

Each month, 20 percent of sales are for cash, and 80 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.

Each month, the ending inventory exactly equals 40 percent of the cost of next month's sales. The markup on goods is 33.33 percent of cost.

Inventory purchases are paid for in the month following purchase.

Recurring monthly expenses are as follows:

Property taxes of $15,000 are due and payable on September 15.

Advertising fees of $6,000 must be paid on October 20.

A lease on a new storage facility is scheduled to begin on November 2. Monthly payments are $5,000.

The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of the month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000.

A partially completed balance sheet as of August 31 is given below. (Accounts payable is for inventory purchases only.)

Required:

1. Complete the balance sheet given in part (j).

Creighton Hardware Store

Balance Sheet

August 31

Assets

Liabilities & Owners' Equity

Cash

$  

Accounts receivable

  

Inventory

  

Plant and equipment

431,750

Accounts payable

$  

Common stock

220,000

Retained earnings

268,750

Totals

$  

$  

2. Bernard wants to see how the company is doing prior to starting the month of December. Prepare a cash budget for the months of September, October, and November and for the three-month period in total (the period begins on September 1). Enter repayments, interest, cash deficiencies and negative total financing as negative amounts. If amount is zero, enter "0".

Creighton Hardware Store

Cash Budget

For the Period Ending November 30

September

October

November

Total

Beginning cash balance

$  

$  

$  

$  

Cash collections

  

  

  

  

Total cash available

$  

$  

$  

$  

Disbursements:

Accounts payable

$  

$  

$  

$  

Salaries and wages

  

  

  

  

Utilities

  

  

  

  

Other

  

  

  

  

Property taxes

  

  

Advertising fees

  

  

Lease

  

  

Total disbursements

$  

$  

$  

$  

Minimum cash balance

  

  

  

  

Total cash needs

$  

$  

$  

$  

Excess (deficiency)

$  

$  

$  

$  

Financing:

Borrowings

$  

$  

Repayments

$  

  

Interest

  

  

Total financing

$  

$  

  

$  

Ending cash balance

$  

$  

$  

$  

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1. Complete the balance sheet given in part (j).

Creighton Hardware Store

Balance Sheet

August 31

Assets

Liabilities & Owners' Equity

Cash

$  

Accounts receivable

  

Inventory

  

Plant and equipment

431,750

Accounts payable

$  

Common stock

220,000

Retained earnings

268,750

Totals

$  

$  

Explanation / Answer

Bernard Creighton is the controller for Creighton Hardware Store. In putting tog

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