Adams Company is a retail company that specializes in selling outdoor camping eq

Question

Adams Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Problem 14-23 Part 1

Required

A.October sales are estimated to be $200,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 percent per month. Prepare a sales budget.

B.The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

C The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.

D The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

E Budgeted selling and administrative expenses per month follow:

*The capital expenditures budget indicates that Adams will spend $164,000 on October 1 for store fixtures, which are expected to have a $20,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

Adams borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $12,000 cash cushion. Prepare a cash budget.

H.Prepare a pro forma income statement for the quarter.

I. Prepare a pro forma balance sheet at the end of the quarter.

J. Prepare a pro forma statement of cash flows for the quarter.

Salary expense (fixed) $ 18,000 Sales commissions 5 % of Sales Supplies expense 2 % of Sales Utilities (fixed) $ 1,400 Depreciation on store fixtures (fixed)* $ 4,000 Rent (fixed) $ 4,800 Miscellaneous (fixed) $ 1,200 2 Required information 2 of 2 Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6 The following information applies to the auestions displayed below) ts Adams Company is a retail company that specializes in selling outdoor camping considering openidg a new store on October 1, 2019. The companypr to prepare a master budget for the first three months of operation. As budget assigned the following tasks Print eferences Problem 14-23 Part 2 h. Prepare a pro forma income statement for the quarter i. Prepare a pro forma balance sheet at the end of the quarter j. Prepare a pro forma statement of cash flows for the quarter Complete this question by entering your answers in the tabs below Required HRequired ! Required 2 of 2

Explanation / Answer

Per Chegg guidelines, 4 sub-parts have been answered.

A. Adams Company Sales Budget October November December Budgeted sales $ 200000 250000 312500 B. Adams Company Schedule of Cash Receipts October November December Cash sales (40%) 80000 100000 125000 Credit sales: October sales 120000 November sales 150000 Total cash receipts $ 80000 220000 275000 C. Adams Company Inventory Purchases Budget October November December Budgeted sales $ 200000 250000 312500 Cost of goods sold (60%) 120000 150000 187500 Desired ending inventory as percent of following month's cost of goods sold 10% 10% 10% Add: Desired ending inventory 15000 18750 12000 Total needs 215000 268750 324500 Less: Beginning inventory 12000 15000 18750 Budgeted inventory purchases $ 203000 253750 305750 D. Adams Company Cash Payments Budget for Inventory Purchases October November December October purchases 142100 60900 November purchases 177625 76125 December purchases 214025 Total cash payments $ 142100 238525 290150

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