Sharp Family Company operates a snowboard shop where peak sales and activity occ

Question

Sharp Family Company operates a snowboard shop where peak sales and activity occur in the months of December and January. Data regarding the store's operations follow: • Sales are budgeted at $350,000 for January, 330,000 for February, and $275,000 for March and $250,000 in April. • Collections are expected to be 30% in the month of sale, 65% in the month following the sale, 3% in the second month following sale and 2% uncollectible. • The cost of goods sold is 76% of sales. • The company desires ending merchandise inventory to equal 13% of the following month's cost of goods sold. Payment for merchandise is made 50% in the month of purchase and 50% in the month following the purchase. • Monthly operating expenses to be paid in cash are $12,000. • Equipment purchases of $40,000 in February and $30,000 in March were paid in cash. • Monthly depreciation is $15,000. • Dividends of $40,000 were declared and paid in January. • Any borrowings must be in $1,000 increments at 12% annual interest. Assume interest accrues at the beginning of the quarter and is paid at the end of the quarter. • The company must maintain a minimum cash balance of $30,000. • Ignore income taxes. • All accounts receivable from December 31 will be collected in January and all accounts payable at December 31 will be paid in January. • The balance sheet as of December 31st: Sharp Family Company Balance Sheet 12/31/15 Assets: Cash $22,000 Net Accounts Receivable $95,000 Merchandise Inventory $36,000 Property Plant and Equipment $1,600,000 Less: accumulated depreciation $588,000 $1,012,000 Total Assets $1,165,000 Liabilities & Stockholder's Equity Accounts Payable $202,000 Common Stock $350,000 Retained Earnings $613,000 Total liabilities and stockholder's equity $1,165,000 Prepare the following budgets for each month of January, February, March and total for the quarter in good form in excel with proper use of formulas and formatting: a. Prepare a Schedule of Expected Cash Collections • What is the budgeted accounts receivable at March 31st ? b. Prepare a Merchandise Purchases Budget and a Schedule of Expected Cash Disbursements • What is the budgeted accounts payable at March 31st ? c. Prepare a Cash Budget • How much does the company need to borrow for the quarter? • How much can the company repay for the quarter? d. Prepare a Budgeted Income Statement Prepare a Budgeted Balance Sheet as of 3/31/16

Explanation / Answer

Books of Sharp Family Company Schedule of Expected Cash Collection January February March April(Extract) Sales 350000 330000 275000 250000 Collection of current month;s sale 30% 105000 99000 82500 75000 Collection of Previous month;s sale 65% 227500 214500 178750 Collection of 2nd Previous month;s sale 3% 10500 9900 Collection of receivables in Dec 31 95000 Total Collection 200000 326500 307500 263650 Budgeted accounts receivable at March 31st Against Sale of February 178750 Against Sale of March 9900 188650 Merchandise Purchases Budget and a Schedule of Expected Cash Disbursements January February March April(Extract) Sales 350000 330000 275000 250000 Cost of Goods Sold 266000 250800 209000 190000 Ending Inventory 13% of Next month's COGS 32604 27170 24700 0 298604 277970 233700 Less Beginning Inventory 36000 32604 27170 24700 Purchase of merchandise 262604 245366 206530 -24700 Payment in current month purchase 131302 122683 103265 -12350 Payment in Next month purchase 131302 122683 103265 Payment of Operating Expenses 12000 12000 12000 12000 Payment for equipment purchase 40000 30000 Payment for dividend 40000 Payment of payable on Dec 31 202000 Total Cah Disbursement 385302 305985 267948 102915 Budgeted accounts payable at March 31st Against purchase of March 103265 Statement of Cash Budget January February March Cash Collection 200000 326500 307500 Beginning Cash balance 22000 30000 50515 Total Cash Available 222000 356500 358015 Less Cash Disbursemnet 385302 305985 267948 Less Interest Payment 7760 Ending Balance -163302 50515 82307 Minimum balance required 30000 30000 30000 Short fall of cash 193302 Nil Nil Loan required 194000 Nil Nil Loan Repayment 52307 Interest on 194000 for 3 months @ 12%pa Borrowing required 194000 Company can repay for the quarter : Principal 52307 Interest 7760 Total repayment 60067 Loan Outstanding 141693 Budgeted Balance Sheet As on 31 March Assets Dec-31 Changes Mar-31 Liabilities and Equity Dec-31 Changes Mar-31 Cash 22000 30000 Accounts Payable 202000 103265 Net Accounts Receivable 95000 188650 Loan 141693 Maerchandise inventory 36000 24700 Common Stock 350000 350000 Plant & Equipment 1600000 70000 1670000 Retained earnings 613000 72392 685392 Less Accumulated Depreciation -588000 -45000 -633000 1165000 1280350 1165000 1280350 Budgeted Income Statement January February March Total Sales 350000 330000 275000 955000 Less: Cost of Godds Sold 725800 Operating Exp 36000 Depreciation 45000 Interest 7760 Uncollectible amount of sales 28048 Total Expenses 842608 Net Income 112392

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