CHECK FIGURE (2) May purchases: $52,640 (4) May 31 cash balance: $5,600 The foll
ID: 2448697 • Letter: C
Question
CHECK FIGURE
(2) May purchases: $52,640
(4) May 31 cash balance: $5,600
The following data relate to the operations of Dillinger Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash
$10,500
Accounts receivable
$21,000
Inventory
$10,080
Buildings and equipment (net)
$140,000
Accounts payable
$36,500
Capital stock
$40,000
Retained earnings
$105,080
a. Gross margin is 30% of sales.
b. Actual and budgeted sales data:
March (actual)
$70,000
April
$72,000
May
$73,000
June
$84,000
July
$80,000
c. Sales are 70% for cash and 30% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are the result of March credit sales.
d. Each month’s ending inventory should equal 20% of the following month’s budgeted cost of goods sold.
e. 25% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable at March 31 are a result of March purchases of inventory.
f. Monthly expenses are as follows: salaries and wages $12,500; rent, $3,600 per month; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $1,000 per month (includes depreciation on new assets).
g. Equipment costing $9,000 will be purchased for cash in April.
h. The company must maintain a minimum cash balance of $5,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth).
Required:
Using the above data:
1. Complete the following schedule:
Schedule of Expected Cash Collections
April
May
June
Quarter
Cash sales
Credit sales
Total collections
2. Complete the following:
Merchandise Purchases Budget
April
May
June
Quarter
Budgeted cost of goods sold*
$50,400
$51,100
Add desired ending inventory†
10,220
Total needs
60,620
Less beginning inventory
10,080
Required: purchases
$50,540
*For April sales: $72,000 sales × 70% cost ratio = $50,400
†$51,100 × 20% = $10,220
Schedule of Expected Cash Disbursements—Merchandise Purchases
April
May
June
Quarter
March purchases
$36,500
$36,500
April purchases
12,635
$37,905
50,540
May purchases
June purchases
Total disbursements
$49,135
3. Complete the following:
Schedule of Expected Cash Disbursements—Selling and Administrative Expenses
April
May
June
Quarter
Salaries and wages
$12,500
Rent
3,600
Other expenses
5,760
Total disbursements
$21,860
4. Complete the following cash budget:
Cash Budget
April
May
June
Quarter
Cash balance, beginning
$10,500
Add cash collections
71,400
Total cash available
81,900
Less cash disbursements...
For inventory
49,135
For expenses
21,860
For equipment
9,000
Total cash disbursements
79,995
Excess (deficiency) of cash
1,905
Financing:
Etc.
5. Prepare an absorption costing income statement similar to Schedule 9 for the quarter ending June 30. (Use the functional format in preparing your income statement, as shown in Schedule 9 in the text.)
6. Prepare a balance sheet as of June 30.
Current assets as of March 31:
Cash
$10,500
Accounts receivable
$21,000
Inventory
$10,080
Buildings and equipment (net)
$140,000
Accounts payable
$36,500
Capital stock
$40,000
Retained earnings
$105,080
Explanation / Answer
(1) Schedule of Expected cash collection
(2) Merchandise purchase budget
Schedule of expected cash disbursement - Merchandise purchase
(3) Schedule of expected cash disbursement - Selling and administrative expense
(4) Cash budget
April May June total cash sales $50,400 $51,100 $58,800 $160,300 Credit sales $21,000 $21,600 $21,900 $ 64,500 Total collection $71,400 $72,700 $80,700 $224,800