5 Cash Accounts receivable 216,800 Inventory Buildings and equipment (net) Accou

Question

5 Cash Accounts receivable 216,800 Inventory Buildings and equipment (net) Accounts payable Common stock Retained earnings $61,000 60,900 371,000 10 points $ 91,425 500,000 118,275 $709,700 $709,700 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual)$271,000 January February March $406,000 $603,000 $318,000 $214,000 April C. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. d. The company's gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales) e. Monthly expenses are budgeted as follows: salaries and wages, $36,000 per month: advertising, $60,000 per month. Shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,460 for the quarter f. Each month's ending inventory should equal 25% of the following month's cost of goods sold g. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid in the following h. During February, the company will purchase a new copy machine for $3,100 cash. During March, other equipment will i. During January, the company will declare and pay $45,000 in cash dividends month. be purchased for cash at a cost of $80,500 j. Management wants to maintain a minimum cash balance of $30,000. 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. 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 Required Using the data above, complete the following statements and schedules for the first quarter 1. Schedule of expected cash collections: 2-a. Merchandise purchases budget: 2-b. Schedule of expected cash disbursements for merchandise purchases: 3. Cash budget 4. Prepare an absorption costing income statement for the quarter ending March 31 5. Prepare a balance sheet as of March 31.

Explanation / Answer

Schedule of Expected Cash Collections Jan Feb Mar Quarter Apr Total sales T 406000 603000 318000 1327000 214000 Cash Sales (20% for cash) S 81200 120600 63600 265400 Credit Sales (T-S) 216800 324800 482400 1024000 Total Collections 298000 445400 546000 1289400 Merchandise Purchases Budget Jan Feb Mar Quarter Apr Budgeted Cost of Goods Sold (60%*sales) $243,600 $361,800 $190,800 $796,200 $128,400 Add Desired Ending Inventory (25%*next COGS $90,450 $47,700 $32,100.0 $32,100.0 Total Needs $334,050 $409,500 $222,900 $828,300 Less Beginning Inventory $60,900 $90,450 $47,700 $60,900 Required Purcahses $273,150 $319,050 $175,200 $767,400 Schedule of Expected Cash Disbursements- Merchandise Purchases (50% in same month and 50% in next month) Jan Feb Mar Quarter Dec Purchases $91,425 $91,425 Jan purchases $136,575 $136,575 $273,150 Feb Purchases $159,525 $159,525 $319,050 Mar Purchases $87,600 $87,600 Total Disbursements $228,000 $296,100 $247,125 $771,225 Cash Budget Jan Feb Mar Quarter Beginnning Cash Balance 61,000 $30,520 $32,480 61,000 Add Cash Collections 298,000 445,400 546,000 1,289,400 Total Cash Avail 359,000 475,920 578,480 1,350,400 Less Cash Disbursements For Inventory $228,000 $296,100 $247,125 $771,225 For Expenses 128480 144240 121440 394160 For Dividend 45000 45000 For Equipment 3100 80500 83600 Total Cash Disbursements $401,480 $443,440 $449,065 $1,293,985 Excess(Deficiency) of Cash ($42,480) $32,480 $129,415 $56,415 Financing: Borrowings: (42480+30000 for jan) 73000 0 73000 Repayments: -73000 -73000 Interest: -2190 -2190 Total Financing 73000 0 -75190 -2190 Ending Cash Balance $30,520 $32,480 $54,225 $54,225 Interest 73000*3%=2190 working Expenses Jan Feb Mar Quarter Saalries & wages 36000 36000 36000 108000 Advertising exp 60000 60000 60000 180000 Shipping exp(5% * S) 20300 30150 15900 66350 Other expenses (3%*sales) 12180 18090 9540 39810 Total cash expenses 128480 144240 121440 394160 Income statement sales 1327000 Less;: Cost of Good sold $796,200 Gross profit $530,800 Less: S & A exp Saalries & wages 108000 Advertising exp 180000 Shipping exp(5% * S) 66350 Other expenses (3%*sales) 39810 Depreciatin 45460 Total S & A exp 439620 Net operating income $91,180 Interest exp 2190 Net Income $88,990 Balance sheet Current assets Cash 54,225 Accounts receivable 254,400 Inventory 32,100 Total Current assets 340,725 Building and equipment, net (371000+83600-45460) 409140 Total assets 749,865 Liabilities & stockholder equity Current liabilities Accounts payable 87,600 stockholder equity Common stock 500000 Retained earnings (118275+88990-45000) $162,265 Totl stockholder equity $662,265 Total Liabilities & stockholder equity $749,865

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