Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, L08-7, LO8-8, LO8-9, LO8-
ID: 2552913 • Letter: P
Question
Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, L08-7, 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: $ 8,300 $ 23,200 $ 44,400 126,000 26,550 150,000 $ 25,350 Cash Accounts receivable Inventory Building and equipment, net Accounts payable Common stock Retained earnings a. The gross margin is 25% of sales. b. Actual and budgeted sales data March (actual) April May June July $58,000 $ 74,000 $ 79,000 104,000 $ 55, 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 f. Monthly expenses are as follows: commissions, 12% of sales; rent, $3,100 per month; other expenses (excluding depreciation), 6% of g. Equipment costing $2,300 will be purchased for cash in April accounts payable at March 31 are the result of March purchases of inventory sales. Assume that these 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 quarter.Explanation / Answer
1) Shilow company Schedule of Expected cash collections April May June Quarter Cash sales 44400 47400 62400 154200 credit sales 23,200 29600 31600 84,400 total collections 67600 77000 94000 238600 Accounts receivable = 104000*40%= 41600 2) Merchandise purchase budget April May June Quarter Budgeted cost of goods sold 55500 59250 78000 192750 41250 Add Desired ending inventory 47400 62400 33000 33,000 total needs 102900 121650 111000 225750 less beginning inventory 44,400 47,400 62,400 44,400 Required purchases 58,500 74,250 48,600 181,350 cost of goods sold = 75% of sales ending inventory = 80% of following months budgeted cost of goods sold 3) Schedule of Cash disbursements-Merchandise purhcase April May June Quarter March purchases 26,550 26,550 April purchases 29250 29,250 58500 May purchases 37125 37,125 74250 June purchases 24300 24300 total disbursements 55,800 66375 61425 183,600 Accounts payable june 30 = 24,300 4) Cash budget April May June Quarter Beginning cash balance 8,300 4,380 3,685 8,300 Add Cash collectiosn 67600 77000 94000 238600 total cas h available 75,900 81,380 97,685 246,900 less cash disbursements for inventory 55,800 66375 61425 183,600 for expenses 16420 17320 21820 55560 for equipment 2,300 0 0 2,300 total cash disbursements 74,520 83695 83245 241,460 Excess(Deficiency)of cash 1,380 -2,315 14,440 5,440 Financing: Borrowings 3,000 6,000 0 9,000 Repayments 0 -9,000 -9,000 interest 0 -210 -210 total financing 3,000 6,000 -9210 -210 Ending cash balance 4,380 3,685 5,230 5,230 interest = 3000*1%*3= 90 6000*1%*2= 120 5) income statement Sales 257000 cost of goods sold Beginning inventor 44,400 Add purchases 181,350 goods available for sale 225,750 ending inventory 33,000 192,750 Gross margin 64,250 Selling and administrative expense commissions 30840 rent 9300 Depreciation (945*3) 2835 other expenses 15420 58395 net operating 5,855 interest expense 210 net income 5,645 Balance sheet Assets current assets Cash 5,230 Accounts receivable 41,600 inventory 33,000 total current assets 79,830 Building And equipment ,net (126,000+2300-2835) 125465 total Assets 205,295 liabilities And stockholder 's Equity Accounts payable 24,300 total current assets 24,300 Stockholder's Equity Capital stock 150,000 Retained earnings(25,350+5645) 30995 180,995 total liabilites & stockholders Equity 205,295