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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of the year:

  1. a. Sales:

Chapter 9, Problem 70P, Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the , example  1

  1. b. Each month, 30% of sales are for cash and 70% are on credit. The collection pattern for credit sales is 20% in the month of sale, 50% in the following month, and 30% in the second month following the sale.
  2. c. Each month, the ending inventory exactly equals 50% of the cost of next month’s sales. The markup on goods is 25% of cost.
  3. d. Inventory purchases are paid for in the month following the purchase.
  4. e. Recurring monthly expenses are as follows:

Chapter 9, Problem 70P, Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the , example  2

  1. f. Property taxes of $15,000 are due and payable on July 15.
  2. g. Advertising fees of $6,000 must be paid on August 20.
  3. h. A lease on a new storage facility is scheduled to begin on September 2. Monthly payments are $5,000.
  4. i. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9%. The company must borrow in multiples of $1,000.
  5. j. A partially completed balance sheet as of June 30 follows. (Note: Accounts payable is for inventory purchases only.)

Chapter 9, Problem 70P, Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the , example  3

Required:

  1. 1. Complete the balance sheet given in Item j.
  2. 2. Prepare a cash budget for each month in the third quarter and for the quarter in total (the third quarter begins on July 1). Prepare a supporting schedule of cash collections.
  3. 3. Prepare a pro forma balance sheet as of September 30.
  4. 4. CONCEPTUAL CONNECTION Form a group with two or three other students. Discuss why a bank might require a cash budget for businesses that are seeking short-term loans. Determine what other financial reports might be useful for a loan decision. Also, discuss how the reliability of cash budgets and other financial information can be determined.

1.

To determine

Fill the missing amounts in the given balance sheet.

Explanation

Cash Budget:

Cash budget is a financial budget. It is prepared to assess inflows and outflows of cash to manage cash balance and timing related issues. Closing cash balance is computed by adding cash receipts and subtracting cash payments from the expected cash available in the beginning.

Balance Sheet:

Particulars

Amount

($)

Assets: 
Cash (balancing figure)13,550
Inventory (Sub-Part2 WN 1)36,000
Accounts receivable 188,200
Plant and equipment 425,000
Total Assets562,750
Liabilities and Equity: 
Accounts payable (Sub-Part2 WN 1)84,000
Capital stock210,000
Retained Earnings 268,750
Total liabilities and equity562,750

Table (1)

Working Notes:

1...

2.

To determine

Construct cash balance for the month of July, August, and September, and for the third quarter in total.

3.

To determine

Prepare balance sheet as on 30th September.

4.

To determine

Explain the reasons due to which cash budgets and other budgets are required to grant loans. Also, explain the manner in which reliability of cash budgets and other financial information can be determined.

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