Jessica Inc. provides you with the following budgeted information for two months
ID: 446763 • Letter: J
Question
Jessica Inc. provides you with the following budgeted information for two months in year 2013:
Expectations:
Cash sales represent 10% of total sales
All sales on account are collected in the following month
55% of March’s $250,000 worth of capital expenditures is to be paid at the end of March. The remainder is to be paid in the following month.
Monthly amortization represents 20% of general and administration costs
Manufacturing costs and general and administration costs are to be paid in the month in which they are incurred
Dividends of $5,000 are expected to be declared in March and paid in April
Jessica Inc. obtains the minimum financing needed to ensure at least a $8,000 cash balance at the end of the month through a bank loan. Assume that any amount taken out of the bank loan may be repaid only at year end.
As of March 1
Do not enter dollar signs or commas in the input boxes.
Use the negative sign for negative values.
a) Prepare a cash budget for March and April.
Receipts:
b) Prepare a budgeted balance sheet for the month of March 2013. Assume that Jessica Inc. sold $295,000 worth of inventory during March.
Do not enter dollar signs or commas in the input boxes.
Use the negative sign for negative values.
Sales: $Answer
Cost of Goods Sold: $Answer
General and Admin. Costs: $Answer
Budgeted Operating Income: $Answer
Explanation / Answer
A. Cash budget for March and April:
Collection in april = 1-10% of march's sales = 90% of 640,000 = 576,000
General and administrative expense will exclude the 20% amortization in the cash budget. Hence only 80% of the total amount will be included.
Capital expenditure paid in March = 250,000*55% = 137,500. In april = 75,000+(45% of 250,000) = 187,500
Financing requirements for March: cash defecit = 102,500. Cash defecit net of opening balance = 102,500 - 18,000 = 84,500. Now a balance of 8,000 has to be maintained. Thus financing amount will be = defecit+minimum balance = 84,500+8,000 = 92,500.
b. Budgeted balance sheet for March 2013:
cash at the end of march = $8,000
accounts receivable = 90% of march's sales = 90% of 640,000 = 576,000
inventory as on March end = opening inventory+manufacturing cost - cost of goods sold
But since cost of goods sold cannot be ascertained as we do not have the margin %, we cannot calculate ending inventory. So, ending inventory will be a balancing figure in the balance sheet.
Long term assets on march end = opening assets+capital expenditure = 90,000+250,000. depreciation for march = 20% of 55,000 = 11,000. net assets = opening assets+capital expenditure - accumulated depreciation - depreciation for march = 90,000+250,000-11,000 - 5,000 = 324,000
Stockholder's equity at the end of march = stockholder's equity at the beginning of march+profit of march.
March's profit = sale - manufacturing costs - SG&A costs (capital expenditure has been included in the balance sheet). = 640,000 - 160,000 - 55,000 = 425,000. Thus equity = 125,000+425,000 = 550,000.
Now, ending inventory = total liability and equity - total assets (excluding ending inventory) = 935500-908000 = 27,500
March April Cash from sales (10% of monthly sales) 64,000 66,500 Collection from customers (from last month's sales) 176,000 576,000 Total cash receipts 240,000 642,500 Disbursements: Manufacturing costs 160,000 350,000 General and administrative exp (80% of total) 44,000 68,000 Capital expenditures 137,500 187,500 Dividend payment 1,000 5,000 Total cash disbursements 342,500 610,500 Cash excess (deficit) -102,500 32,000 Bank loan 92,500 0 Total cash inflow (outflow) -10,000 32,000 Opening cash balance 18,000 8,000 Ending cash balance 8,000 40,000Related Questions
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