Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2547990 • Letter: P
Question
Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10] The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods Current assets as of March 31 $ 7,400 $ 19,600 $ 39,000 $ 126,000 $ 23,175 $ 150,000 $ 18,825 Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earn a. The gross margin is 25% of sales b. Actual and budgeted sales data: March (actual) April May June Ju $ 49,000 $ 65,000 $ 70,000 $ 95,000 $46,000 C. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold e. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are f. Monthly expenses are as follows: commissions, 12% of sales, rent, $2,200 per month, other expenses (excluding depreciation), 6% of sales. Assume that these g. Equipment costing $1,400 will be purchased for cash in April the result of March purchases of inventory expenses are paid monthly. Depreciation is $945 per month (includes depreciation on new assets). h. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarterExplanation / Answer
Answer a Sales Budget April May June Total Sales 65,000 70,000 95,000 230,000 Cash Sales - 60% 39,000 42,000 57,000 138,000 Credit Sales - 40% 26,000 28,000 38,000 92,000 Answer 1. Schedule of Expected Cash Collections April May June Total Cash Sales 39,000 42,000 57,000 138,000 Credit Sales 19,600 26,000 28,000 73,600 Total cash Collections 58,600 68,000 85,000 211,600 Answer 2. Merchandise Purchase Budget April May June Total Budgeted Cost of Goods Sold - 75% of Sales 48,750 52,500 71,250 172,500 Add: Ending Inventory 42,000 57,000 27,600 27,600 Total Needs 90,750 109,500 98,850 200,100 Less: Beginning Inventory (39,000) (42,000) (57,000) (39,000) Required Purchases 51,750 67,500 41,850 161,100 Schedule of Expected Cash Disbursements - Merchandise Purchases April May June Total Cash Payment March Purchases 23,175 23,175 April Purchases 25,875 25,875 51,750 May Purchases 33,750 33,750 67,500 June Purchases 20,925 20,925 Total Cash Payment to Suppliers 49,050 59,625 54,675 163,350 Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 7,800 8,400 11,400 27,600 Rent (Fixed) 2,200 2,200 2,200 6,600 Other Expense - 6% of Sales 3,900 4,200 5,700 13,800 Depreciation 945 945 945 2,835 Total 14,845 15,745 20,245 50,835 Schedule of Cash payments of Selling & Admn. Budget April May June Total Sales Comm. - 12% of Sales 7,800 8,400 11,400 27,600 Rent (Fixed) 2,200 2,200 2,200 6,600 Other Expense - 6% of Sales 3,900 4,200 5,700 13,800 Total 13,900 14,800 19,300 48,000 Answer 3. Cash budget April May June Total Beginning cash Balance 7,400 4,650 4,225 7,400 Add: Cash Collection 58,600 68,000 85,000 211,600 Total Cash available 66,000 72,650 89,225 219,000 Less: Cash Disbursements For Inventory 49,050 59,625 54,675 163,350 For Expenses 13,900 14,800 19,300 48,000 For Equipment 1,400 - - 1,400 Total Cash Disbursement 64,350 74,425 73,975 212,750 Cash Balance Closing 1,650 (1,775) 15,250 6,250 Add: Finance from Bank 3,000 6,000 9,000 Less: Payment to Bank - - (9,000) (9,000) Less: Payment of interet - Bank loan - - (210) (210) Net Cash Balance Closing 4,650 4,225 6,040 6,040 Income Statement For the Qtr Ending June 30 Sales 230,000 Cost of Goods Sold - 75% of sales 172,500 Gross Margin 57,500 Less: Selling & Administration Expense Sales Comm. - 12% of Sales 27,600 Rent (Fixed) 6,600 Other Expense - 6% of Sales 13,800 Depreciation 2,835 50,835 Operating Profit 6,665 Less: Interest Expenses 210 Net Income 6,455 Balance Sheet As on June 30 Assets Current Assets Cash 6,040 Accounts receivables 38,000 Inventory 27,600 71,640 Fixed Assets Building & Equipment ($126,000 + $1,400) 127,400 Less: Dep. (2,835) 124,565 Total Assets 196,205 Liabilities Accounts Payable 20,925 Total liabilities 20,925 Shareholders's Equity Common Stock 150,000 Retained Earnings 25,280 Total Stockholders equity 175,280 Total liabilities & Stockholders' Equity 196,205 - Schedule of Retained Earnings As on June 30 Opening Balance 18,825 Add: net income 6,455 Less: Dividend declared - Closing Balance 25,280