he management of Zigby Manufacturing prepared the following estimated balance sheet for March 2019: ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2019 Assets Cash $ 40,000 Accounts receivable 342,248 Raw materials inventory 98,500 Finished goods inventory 325,540 Total current assets 806,288 Equipment 600,000 Accumulated depreciation (150,000 ) Equipment, net 450,000 Total assets $ 1,256,288 Liabilities and Equity Accounts payable $ 200,500 Short-term notes payable 12,000 Total current liabilities 212,500 Long-term note payable 500,000 Total liabilities 712,500 Common stock 335,000 Retained earnings 208,788 Total stockholders’ equity 543,788 Total liabilities and equity $ 1,256,288 To prepare a master budget for April, May, and June of 2019, management gathers the following information. Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product’s selling price is $23.85 per unit and its total product cost is $19.85 per unit. Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy. Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead. Sales representatives’ commissions are 8% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,000. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale). All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance. Dividends of $10,000 are to be declared and paid in May. No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 35% in the quarter and paid in the third calendar quarter. Equipment purchases of $130,000 are budgeted for the last day of June. Required: Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.): 1. Sales budget. 2. Production budget. 3. Raw materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Cash budget. 9. Budgeted income statement for the entire second quarter (not for each month separately). 10. Budgeted balance sheet.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
he management of Zigby Manufacturing prepared the following estimated balance sheet for March 2019:
| ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2019 |
||||
| Assets | ||||
| Cash | $ | 40,000 | ||
| Accounts receivable | 342,248 | |||
| Raw materials inventory | 98,500 | |||
| Finished goods inventory | 325,540 | |||
| Total current assets | 806,288 | |||
| Equipment | 600,000 | |||
| Accumulated |
(150,000 | ) | ||
| Equipment, net | 450,000 | |||
| Total assets | $ | 1,256,288 | ||
| Liabilities and Equity | ||||
| Accounts payable | $ | 200,500 | ||
| Short-term notes payable | 12,000 | |||
| Total current liabilities | 212,500 | |||
| Long-term note payable | 500,000 | |||
| Total liabilities | 712,500 | |||
| Common stock | 335,000 | |||
| 208,788 | ||||
| Total |
543,788 | |||
| Total liabilities and equity | $ | 1,256,288 | ||
To prepare a
- Sales for March total 20,500 units.
Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product’s selling price is $23.85 per unit and its total product cost is $19.85 per unit. - Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
- Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy.
- Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.- Sales representatives’ commissions are 8% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,000.
- Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
- The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
- All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
- The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
- Dividends of $10,000 are to be declared and paid in May.
- No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 35% in the quarter and paid in the third calendar quarter.
- Equipment purchases of $130,000 are budgeted for the last day of June.
Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):
1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8.
9.
10. Budgeted balance sheet.
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