My accouting group and I are having trouble with Part 4 of this assignment, spec
ID: 2542263 • Letter: M
Question
My accouting group and I are having trouble with Part 4 of this assignment, specifically with getting our Total Assets and Total Liabilities and Stockholder's Equity accounts to balance on the required Budgeted Balance Sheet. Below is the original question containing all the given information, and beneath that is all of our work for the previous parts where we drew our numbers from. Help would be greatly appreciated – Thank you!
Given:
You have just been hired as a new management trainee by CheapFlips Inc., a distributor of lowcost flip flops to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.
Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below. of shoes for the last three months and budgeted sales for the next six months follow (in pairs of shoes): The company sells many styles of shoes, but all are sold for the same price— $10.00 per pair.
The concentration of sales before and during May is due to the anticipation of warmer weather. Sufficient inventory should be on hand at the end of each month to supply for a pair of shoes. 40.0% of the shoes sold in the following month.
The company pays suppliers $3.50 for a pair of shoes. Onehalf of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found sales are collected as follows:
Monthly operating expenses for the company are given below:
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $25,500 in new equipment during May and $38,500 in new equipment during June; both purchases will be for cash. The new company declares dividends of $18,000 each quarter, payable in the first month of the following quarter.
A listing of the company’s ledger accounts as of March 31 is given below:
*balance includes $13,000 in February and an additional $320,000 in March Sales
The company maintains a minimum cash balance of $50,000.
The company has an agreement with a bank that allows the company to borrow cash at the beginning of each month. The interest rate on these loans is 1.50% per month and for simplicity we will assume interest is not compounded. All borrowing done at the beginning of a month; any repayments are made at the end of a month. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.
Required:
Prepare a master budget for three-month period ending June 30. Includ the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
Our Work:
January (actual) February (actual) March (actual) April (budget) May (budget) 20,000 26,000 40,000 70,000 100,000 June (budget) July (budget) August (budget) September (budget) 30,000 35,000 22,000 30,000Explanation / Answer
Error noticed in Cash collections from Sales - Opening accounts receivable considered twice.
Error noticed in Merchandise Purchases - Opening Inventory considered wrongly.
Please find the attached working -
Sales Budget Particulars April May June Quarter Budgeted Sales in units 70,000 100,000 30,000 200,000 Selling price per unit $ 10 $ 10 $ 10 $ 10 Total budgeted sales $ 700,000 $ 1,000,000 $ 300,000 $ 2,000,000 Schedule of Expected cash collections from Sales Particulars April May June Quarter February Sales 5% $ 13,000 $ 13,000 March Sales 75% $ 300,000 $ 300,000 5% $ 20,000 $ 20,000 April Sales 20% $ 140,000 $ 140,000 75% $ 525,000 $ 525,000 5% $ 35,000 $ 35,000 May Sales 20% $ 200,000 $ 200,000 75% $ 750,000 $ 750,000 5% $ - June Sales 20% $ 60,000 $ 60,000 75% $ - 5% $ - Cash collections $ 453,000 $ 745,000 $ 845,000 $ 2,043,000 Closing Accounts receivable Opening Accounts receivable $ - April Sales $ - May Sales (5%) $ 50,000 June Sales (75% & 5%) $ 240,000 $ 290,000 Merchandise Purchase Budget (opening + Purchase - Sales = Closing => Purchases = Closing + Sales - Opening) Particulars April May June Quarter Budgeted Sales 70,000 100,000 30,000 200,000 Add: Desired Closing Inventory 40,000 12,000 14,000 14,000 (40% of next month sales) Less: Opening Inventory (28,000) (40,000) (12,000) (28,000) (Opening = 98000/3.5) Purchase units 82,000 72,000 32,000 186,000 Cost of purchase per unit $ 3.50 $ 3.50 $ 3.50 $ 3.50 Cost of Purchases $ 287,000 $ 252,000 $ 112,000 $ 651,000 Closing Inventory' $ 49,000 (14,000 x $3.5) Cost of Goods Sold = Opening + Purchases - Closing => (28,000 + 186,000 - 14,000 ) x $ 3.50 => 700,000 Expected cash disbursement for Inventory Particulars April May June Quarter Accounts payable 31st March $ 91,000 $ 91,000 April Purchases -50% $ 143,500 $ 143,500 -50% $ 143,500 $ 143,500 May Purchases -50% $ 126,000 $ 126,000 -50% $ 126,000 $ 126,000 June Purchases -50% $ 56,000 $ 56,000 -50% $ - $ 234,500 $ 269,500 $ 182,000 $ 686,000 Accounts payable as at 30th June $ 56,000 Cash Budget Particulars April May June Quarter Opening cash balance $ 74,000 $ 50,000 $ 50,000 $ 74,000 Add: Collection from Sales $ 453,000 $ 745,000 $ 845,000 $ 2,043,000 Cash avialable $ 527,000 $ 795,000 $ 895,000 $ 2,117,000 Less: Cash disbursements Payments for merchandise $ 234,500 $ 269,500 $ 182,000 $ 686,000 Sales commission (@5% on sales) $ 35,000 $ 50,000 $ 15,000 $ 100,000 Advertising $ 155,000 $ 155,000 $ 155,000 $ 465,000 Rent $ 40,000 $ 40,000 $ 40,000 $ 120,000 Salaries $ 93,000 $ 93,000 $ 93,000 $ 279,000 Utilities $ 14,000 $ 14,000 $ 14,000 $ 42,000 Insurance $ - $ - $ - $ - Dividends $ 18,000 $ - $ - $ 18,000 Equipment purchase $ - $ 25,500 $ 38,500 $ 64,000 Cash disbursements $ 589,500 $ 647,000 $ 537,500 $ 1,774,000 Excess / (Deficiency) $ (62,500) $ 148,000 $ 357,500 $ 343,000 Financing Borrowing $ 112,500 $ - $ - $ 112,500 Repayments $ - $ (96,313) $ (16,187) $ (112,500) Interest $ - $ (1,688) $ (243) $ (1,930) Closing cash balance $ 50,000 $ 50,000 $ 341,070 $ 341,070 Royal Company Budgeted Income statement for the 3 months ended 30th june Particulars Amount Amount Budgeted Sales $ 2,000,000 Cost of Goods Sold $ (700,000) Gross Margin $ 1,300,000 Selling and Adminstrative expenses Sales commission $ 100,000 Advertising $ 465,000 Rent $ 120,000 Salaries $ 279,000 Utilities $ 42,000 Insurance ($5,000 x 3) $ 15,000 Depreciation ($15,000 x 3) $ 45,000 $ 1,066,000 Operating Income $ 234,000 Interest Expense $ (1,930) Net margin $ 232,070Related Questions
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