Exercise 4) Carly\'s Critters Company operates a gift shop at the local zoo. The
ID: 2561850 • Letter: E
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Exercise 4) Carly's Critters Company operates a gift shop at the local zoo. The results of operations for the first quarter of 2018 are as follows: Cost of Goods Sold Gross Margin Selling & Administrative Expenses Operating Income Income Taxes Net Income $125,000 (S68.750 $56,250 ($12.750 $43.500 ($13.920 Additional Information: 1. Asset accounts are cash, accounts receivable, inventory, and equipment (net). Accounts payable is the only liability account. Owner's equity accounts are common stock and retained 2. Fifty-five percent of inventory purchases are paid in the quarter of purchase and 45 percent are paid in the following quarter. All other expenses, including taxes, are paid in the quarter The cash balance at the end of quarter one is S8.888. 4. 3· Sales and cost of goods sold are expected to decrease by 12 percent in each of the next thrce quarters of the year. 5. Selling& Administrative expenses are expected to increase by $4,675 due to increases in advertising and salaries. All other expenses in this category are expected to remain constant 6. The balance in accounts receivable at the end of quarter one relates to sales made during the first quarter of 2018. 7. Dividends of $905 are paid out during each quarter. 8. Inventory purchases in the first quarter of 2018 are $44,440. 9. The balance in accounts payable at the end of quarter one relates to purchases made during the first quarter of 2018. 10. Selling & Administrative expense includes $985 of quarterly depreciation related to equipment The equipment had a book value of $17,825 at the end of quarter one. 11. Inventory at the end of the first quarter is $64,670. The company plans on holding ending inventory equal to 75 percent of subsequent quarter cost of goods. 12. Sixty-five percent of sales are collected in the quarter of sale and 35 percent are collected in the quarter following the sale. 13. Common stock at the end of quarter one is $80,568 and retained earnings is $34,567 14. The tax rate is expected to remain at 32 percent Required A. Prepare a budgeted income statement for the second quarter of 2018. B. Prepare a cash receipts & disbursements budget for the second quarter of 2018. C. Prepare a budgeted balance sheet as of the end of the second quarter of 2018. D. The company is discussing the possibility of opening a new store at a new zoo right at the beginning of the third quarter. This store would require cash payments of $15,000. Assuming the company wants a minimum cash balance of $40,000 at the beginning of the third quarter,can a new store be opened without obtaining additional funds? How much will they have to borrow or have left over?Explanation / Answer
Answer A. Budgeted Income Statement For the Second Quarter -2018 Sales - $125,000 X 88% 110,000.00 Cost of Goods Sold - $68,750 X 88% (60,500.00) Gross Margin 49,500.00 Selling & Advertising Expenses - $12,750 + $4,675 (17,425.00) Net Operating Income 32,075.00 Income Tax - 32% (10,264.00) Net Income 21,811.00
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