Nordic Company, a merchandising company, prepares its master budget on a quarter

Question

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances:

Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales.

Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $6,000 per month; shipping, 6% of sales; advertising, $4,800 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $4,000 for the quarter.

Half of a month’s inventory purchases are paid for in the month of purchase and half in the following month.

Equipment purchases during the quarter will be as follows: April, $9,000; and May, $7,000.

Management wants to maintain a minimum cash balance of $8,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Schedule of expected cash collections:

Prepare an absorption costing income statement for the quarter ending June 30. (Input all amounts as positive values.)

Prepare a balance sheet as of June 30. (Be sure to list the assets and liabilities in order of their liquidity.)

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

Explanation / Answer

1

Nordic Company
Income Statement
For the Quarter Ended June 30

2

Nordic Company
Balance Sheet
June 30

Working notes

Statement showing collection from debtors

2. COGS = Opening stock + Purchases - closing stock

Payment for purchases

3.Cash available

Particulars Amount Sales $229000 Less: Cost of goods sold 60% of sales $137400 Gross margin $91600 Less: Selling and administrative expenses Salaries and wages $18000 Shipping (6% of month's sale) $13740 Advertising $14400 Other expense $9160 depreciation $4000 Net Operating income befor interest $32300 Less: Interest (14940*1%)x3 448 Operating Income 31852 Less: Dividend 2000 Net Income 29852

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