Weldon Industrial Gas Corporation supplies acetylene and other compressed gases
ID: 2571294 • Letter: W
Question
Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:
• Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January.
• Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible.
• The cost of goods sold is 65% of sales.
• The company desires an ending merchandise inventory equal to 60% of the cost of goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $61,900.
• Monthly depreciation is $20,000.
• Equipment purchased in December of $55,000.
• Dividend paid in December of $75,000.
• Financing: If cash is over $50,000 at the end of any month, pay back loan in increments of $5,000. If cash is under 15,000 at the end of any month, borrow in $5,000 increments.
• Ignore taxes.
Balance Sheet
October 31
Assets:
Cash $ 16,000
Accounts receivable (net of allowance for uncollectible accounts) 74,000
Merchandise inventory 140,400
Property, plant and equipment (net of $500,000 accumulated depreciation) 1,066,000
Total assets $1,296,400
Liabilities and Stockholders’ Equity:
Accounts payable $ 240,000
Notes payable 115,000
Common stock 640,000
Retained earnings 301,400
Total liabilities and stockholders’ equity $1,296,400
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
Answer:
a November December
Sales $ $
Schedule of Expected Cash Collections
Accounts receivable $
November sales $
December sales .
Total cash collections $ $ .
b. November December
Budgeted cost of goods sold $ $
Add desired ending merchandise inventory
.
Total needs
Less beginning merchandise inventory .
Required purchases $ $ .
c. November December
Cash disbursements for merchandise $ $
Other monthly expenses
Dividends paid
Equipment purchased .
Total cash disbursements $ $ .
Beginning cash balance $ $
Add cash receipts .
Total cash available
Less cash disbursements .
Excess (deficiency) of cash available over disbursements
Financing .
Ending cash balance $ $ .
d. November December
Sales $ $
Cost of goods sold .
Gross margin .
Bad debt expense
Other monthly expenses
Depreciation .
Total expenses .
Net operating income $ $ .
e. Balance Sheet
December 31
Assets:
Cash $
Accounts receivable (net of allowance for uncollectible accounts)
Merchandise inventory
Property, plant and equipment (net of $540,000 accumulated depreciation) .
Total assets $ .
Liabilities and Stockholders’ Equity:
Accounts payable $
Notes payable
Common stock
Retained earnings .
Total liabilities and stockholders’ equity $ .
Hottle Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting:
In February, the company budgeted for 342 guests and 146 jeeps. The company's income statement showing the actual results for the month appears below:
Required:
Prepare a flexible budget performance report showing both the company's activity variances and revenue and spending variances for February. Label each variance as favorable (F) or unfavorable (U).
Answer:
Hottle Jeep Tours
Flexible Budget Performance Report
For the Month Ended February 28
Revenue and
Actual Spending Flexible Activity Planning
Results Variances Budget Variances Budget
Guests
Jeeps
Revenues .
Expenses:
Tour guide wages
Vehicle expenses
Administrative expenses .
Total expense .
Net operating income .
Explanation / Answer
a. Expected Cash Flows
Particulars
November
December
Sales
360,000
380,000
Accounts Receivable
74,000
0
November Sales
270,000
72,000
December Sales
0
285,000
Total Cash Collections
344,000
357,000
b. Budgeted Purchases
Particulars
November
December
Budgeted Cost of goods sold
234,000
247,000
Add: Closing Inventory
247,000 x 60% = 148,200
350,000 x 65% x 60% = 136,500
Total Needs
382,200
383,500
Less: Opening Inventory
(140,400)
(148,200)
Required Purchases
241,800
235,300
c. Cash Budget for November & December
Particulars
November
December
Cash disbursements for merchandise
240,000
241,800
Other Monthly expenses
61,900
61,900
Dividends Paid
75,000
Equipment purchase
55,000
Total Cash Disbursements
301,900
433,700
Beginning Cash Balance
16,000
53,100
Add: Cash Receipts
344,000
357,000
Total Cash Available
360,000
410,100
Less: Cash Disbursement
301,900
433,700
Excess (Deficiency) Cash
58,100
(23,600)
Financing/ (payback loan)
(5,000)
40,000
Ending cash Balance
53,100
16,400
NOTE: Cash Deficit of $23,600 is required to be filled by taking loan in increments of $5,000. Moreover, at least $15,000 cash balance is required to be maintained.
Therefore, Total Loan to meet cash needs = 23,600 + 15,000 = 38,600. ($40,000 in terms of 5,000 increment)
Particulars
November
December
Sales
360,000
380,000
Accounts Receivable
74,000
0
November Sales
270,000
72,000
December Sales
0
285,000
Total Cash Collections
344,000
357,000
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