Concept explainers
Schedules of Expected Cash Collections and Disbursements; Income Statement: Balance Sheet LOB-2. L08-4, LOB-9, LOB—10
Refer to the data for Beech Corporation in Exercise 8-12 .The Company is considering making the following changes to the assumptions underlying its
1. Each month’s credit sales are collected 45% in the month of sale and 55%in the month following the sale.
2. Each month’s ending inventory must equal 20% of the cost of nextmonth’s sales.
3. Thecompany pays for 30% of its merchandise purchases in the month of the purchase and the reaming 70% us the month following the purchase.
All other information from Exercise 8-12 that is not mentioned above remains the same.
Required:
Using the new assumptions described above, complete the following requirements:
1. Prepare a schedule of expected cash collections for July. August, and September, Also compute total cash collections for the quarter ended September 30.
2. a. Prepare a merchandise purchases budget for July. August, and September Also compute total merchandise purchases for the quarter ended September30.
b. Prepare a schedule of expected cash disbursements for merchandise purchases for July. August and September Also compute total cash disbursementsfor merchandise purchases for the quarter ended September 30.
3. Using Schedule 9 as your guide, prepare an income statement for the quarter ended September 30.
4. Prepare a balance sheet as of September 30.
1.
the value of the collection in the month of July, August, September and October
Introduction: Budget is the evaluation of the revenue and the expense which is expected incur in the specified period.
Explanation of Solution
Total cash collection of the July August, September and December are $230,500, 219,000, 225,500 and $229,000.
Calculate the expected cash collection,
Particulars | July | August | September | October |
Sales | 210,000 | 230,000 | 220,000 | 240,000 |
Collection | ||||
45% in month of sales | 94,500 | 103,500 | 99,000 | 108,000 |
55% in the month of following | 0 | 115,500 | 126,500 | 121,000 |
Collection from account receivable | 136,000 | 0 | 0 | 0 |
Total cash collection | 230,500 | 219,000 | 225,500 | 229,000 |
2.
the value of the merchandise purchase for the quarter ended September
Introduction: Budget is the evaluation of the revenue and the expense which is expected incur in the specified period.
Explanation of Solution
Formula to calculate the merchandise purchase for the quarter ended September,
Substitute, $27,600 for the closing inventory July, $26,400 for the closing inventory of August and $28,800 for the September
Working notes:
Calculation of merchandise purchase budget
Particulars | July | August | September | October |
Sales | 210,000 | 230,000 | 220,000 | 240,000 |
Cost of goods sold (60%) | 126,000 | 138,000 | 132,000 | 144,000 |
Less: Opening inventory | 62,000 | 27,600 | 26,400 | |
Add: closing inventory(20% of the next month cost of goods sold) | 27,600 | 26,400 | 28,800 | |
b.
The value of the merchandise purchases
Introduction: Budget is the evaluation of the revenue and the expense which is expected incur in the specified period.
Explanation of Solution
Formula to calculate total cash disbursement for merchandise purchase for the quarter ended September,
Substitute, $113,200 for merchandise purchase in month July, $117,200for merchandise purchase in month of August and $135,800 for merchandise purchase in month September
Working notes:
Particulars | July | August | September |
Purchases | 91,600 | 136,800 | 134,400 |
Cash payment (30%) | $27,480 | $41,040 | $40,320 |
70% on the following month | 0 | 64,120 | 95,760 |
Payment of account payable in month of July | 71,100 | 0 | 0 |
Total | 98,580 | 105,160 | 136,080 |
Calculate the purchase in the month of July,
Calculate the purchase in the month of August,
Calculate the purchase in the month of September,
3.
To prepare: Income statement of the company
Introduction: Budget is the evaluation of the revenue and the expense which is expected incur in the specified period.
Explanation of Solution
Particulars | JulyAmount ($) | AugustAmount ($) | September Amount ($) |
Sales | 210,000 | 230,000 | 220,000 |
Cost of goods sold (60%) | 126,000 | 138,000 | 132,000 |
Gross profit | 84,000 | 92,000 | 88,000 |
Less: Selling & Administration expense | (60,000) | (60,000) | (60,000) |
Less: Depreciation | (5,000) | (5,000) | (5,000) |
Less: remaining expense | (55,000) | (55,000) | (55,000) |
Net profit(loss) | (36,000) | (28,000) | (32,000) |
4.
To Prepare: Balance sheet of the company
Introduction: Budget is the evaluation of the revenue and the expense which is expected incur in the specified period.
Explanation of Solution
Balance sheetas on September 31 | |
Assets: | Amount
($) |
Cash | 225,500 |
Account receivable | 121,000 |
Inventory | 62,000 |
Plant and equipment, net of depreciation | 132,000 |
Total assets | 540,500 |
Liability and stockholder’ equity | |
Account payable | 209,600 |
Common stock | 327,000 |
Retained earnings | 3,900 |
Total liabilities and stockholder’s equity | 563,500 |
Working notes:
Calculate the retained earnings,
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Chapter 8 Solutions
Introduction To Managerial Accounting
- Relevant data from the Poster Companys operating budgets are: Additional data: Capital assets were sold in January for $10,000 and $4,500 in May. Dividends of $4,500 were paid in February. The beginning cash balance was $60,359 and a required minimum cash balance is $59,000. Use this information to prepare a cash budget for the first two quarters of the yeararrow_forwardA companys sales for the coming months are as follows: About 20 percent of sales are cash sales, and the remainder are credit sales. The company finds that typically 10 percent of a months credit sales are paid in the month of sale, 70 percent are paid the next month, and 15 percent are paid in the second month after sale. Expected cash receipts in July are budgeted at what amount? a. 114,520 b. 143,150 c. 145,720 d. 156,000arrow_forwardRelevant data from the operating budget of The Framers are: Other data: Capital assets were sold in quarter 1 and $8,000 was collected in quarter 1 and $500 collected in quarter 2. Dividends of $500 will be paid in May The beginning cash balance was $50,000 and a required minimum cash balance is $10,000. Prepare a cash budget for the first two quarters of the year.arrow_forward
- A companys controller is adjusting next years budget to reflect the impact of an expected 3 percent inflation rate. Listed below are selected items from next years budget before the adjustment. After adjusting for the 3 percent inflation rate, what is the companys total budget for the selected items before taxes for next year? a. 858,150 b. 860,412 c. 810,971 d. 858,971arrow_forwardCash Budget The controller of Feinberg Company is gathering data to prepare the cash budget for July. He plans to develop the budget from the following information: a. Of all sales, 40% are cash sales. b. Of credit sales, 45% are collected within the month of sale. Half of the credit sales collected within the month receive a 2% cash discount (for accounts paid within 10 days). Thirty percent of credit sales are collected in the following month; remaining credit sales are collected the month thereafter. There are virtually no bad debts. c. Sales for the second two quarters of the year follow. (Note: The first 3 months are actual sales, and the last 3 months are estimated sales.) d. The company sells all that it produces each month. The cost of raw materials equals 26% of each sales dollar. The company requires a monthly ending inventory of raw materials equal to the coming months production requirements. Of raw materials purchases, 50% is paid for in the month of purchase. The remaining 50% is paid for in the following month. e. Wages total 105,000 each month and are paid in the month incurred. f. Budgeted monthly operating expenses total 376,000, of which 45,000 is depreciation and 6,000 is expiration of prepaid insurance (the annual premium of 72,000 is paid on January 1). g. Dividends of 130,000, declared on June 30, will be paid on July 15. h. Old equipment will be sold for 25,200 on July 4. i. On July 13, new equipment will be purchased for 173,000. j. The company maintains a minimum cash balance of 20,000. k. The cash balance on July 1 is 27,000. Required: Prepare a cash budget for July. Give a supporting schedule that details the cash collections from sales.arrow_forwardWhat is the amount of budgeted cash payments if purchases are budgeted for $420,000 and the beginning and ending balances of accounts payable are $95,000 and $92,000, respectively?arrow_forward
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- Cash budget The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent 12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of June 1 include cash of 42,000, marketable securities of 25,000, and accounts receivable of 198,000 (150,000 from May sales and 48,000 from April sales). Sales on account in April and May were 120,000 and 150,000, respectively. Current liabilities as of June 1 include 13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of 24,000 will be made in July. Mercury Shoes regular quarterly dividend of 15,000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of 40,000. Instructions Prepare a monthly cash budget and supporting schedules for June, July, and August. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?arrow_forwardWhat is the amount of budgeted cash payments if purchases are budgeted for $190,500 and the beginning and ending balances of accounts payable are $21,000 and $25,000, respectively?arrow_forwardCASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2019 and 2020: Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depreciation charges are 36,000 a month. Miscellaneous expenses are 2,700 a month. Income tax payments of 63,000 are due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2019. b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1/30 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal, and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain.arrow_forward
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