Exercise 4) Carly\'s Criters Company operates a gif shop at the local zo. The re
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Exercise 4) Carly's Criters Company operates a gif shop at the local zo. The results of operations for the first quarter of 2018 are as follows: Sales 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 LS1392 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 eamings. 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 incurred. The cash balance at the end of quarter one is SS-888. Sales and cost of goods sold are expected to decrease by 12 percent in each of the next three quarters of the year 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. The balance in accounts receivable at the end of quarter one relates to sales made during the first quarter of 2018. Dividends of $905 are paid out during each quarter. Inventory purchases in the first quarter of 2018 are $44,440. The balance in accounts payable at the end of quarter one relates to purchases made during the first quarter of 2018. 2. 3· 4. 5. 6· 7. 8. 9 10. Selling & Administrative expense includes $985 of quarterly depreciation related to equipment 11. Inventory at the end of the first quarter is $64,670. The company plans on holding ending 12. Sixty-five percent of sales are collected in the quarter of sale and 35 percent are collected in the The equipment had a book value of $17.825 at the end of quarter one. inventory equal to 75 percent of subsequent quarter cost of goods. quarter following the sale. 13. Common stock at the end of quarter one is $80,568 and retained earnings is $3 14. The tax rate is expected to remain at 32 percent. Reguired A. 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 mo right at the Prepare a budgeted income statement for the second quarter of 2018. 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 Answer b. Schedule of Expected Cash Collections from Sales QTR 2 Collection from Accounts Receivables QTR 1 - Sales 43,750.00 QTR 2- Sales - $110,000 X 65% 71,500.00 Total cash Collections 115,250.00 Answer c Merchandise Purchase Budget QTR 2 QTR 3 Cost of Goods Sold 60,500.00 53,240.00 Add: Closing Inventory - $53,240 X 75% 39,930.00 Total Needs 100,430.00 Less: Beginning Inventory (64,670.00) Required Purchases of Material 35,760.00 Schedule of Cash payments to Suppliers QTR 2 Cash Payment Accounts Payable - Qtr 1 19,998.00 Purchases - QTR 2 - $35,760 X 55% 19,668.00 Total Cash Payment to Suppliers 39,666.00 Selling & Admn. Budget April Selling & Admn Exp. 16,440.00 Depreciation 985.00 Total 17,425.00 Cash budget April Opening cash Balance 8,888.00 Add: receipts Collection from Customers 115,250.00 Total Cash available 124,138.00 Less: Disbursements Cash Disbursement - Accounts Payable 39,666.00 Selling & Admn. Exp. 16,440.00 Purchase of Equipment - Dividend Paid 905.00 Income Tax Paid 10,264.00 Total Disbursement 67,275.00 Cash Balance Closing 56,863.00 Answer C. Budgeted Balance Sheet As of the End of Qtr 2, 2018 Assets Current Asserts Cash 56,863.00 Accounts Receivable 38,500.00 Inventory 39,930.00 135,293.00 Property, Plant & Equipment Equipment 17,825.00 Less: Dep 985.00 16,840.00 Total Assets 152,133.00 Liabilities & Stockholders' Equity Liabilities Current liabilities Accounts Payable 16,092.00 Other Liabilities - Total Liabilities 16,092.00 Stockholders' Equity Common Stock 80,568.00 Retained Earnings 55,473.00 Total Stockholders' Equity 136,041.00 Total Liabilities & Stockholders' Equity 152,133.00 Statement of Retained Earnings Beginning Balance 34,567.00 Add: Net Income 21,811.00 Less: Dividends (905.00) Ending Balance 55,473.00 Answer D. Yes, there are sufficient balance. The Cash Balance at the end of Qtr 2 56,863.00 Cash Required for New Store 15,000.00 Balance 41,863.00
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