Question

Thornton Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Problem 14-23 Part 1

Required

October sales are estimated to be $400,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 30 percent per month. Prepare a sales budget.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $13,500. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	19,500
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,900
Depreciation on store fixtures (fixed)*	$	5,500
Rent (fixed)	$	6,300
Miscellaneous (fixed)	$	2,700

*The capital expenditures budget indicates that Thornton will spend $167,000 on October 1 for store fixtures, which are expected to have a $35,000 salvage value and a two-year (24-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

G. Thornton borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $27,000 cash cushion. Prepare a cash budget.

H. Prepare a pro forma income statement for the quarter.

I. Prepare a pro forma balance sheet at the end of the quarter.

J. Prepare a pro forma statement of cash flows for the quarter.

***I only need help with G-J. ***

Answer 1

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									Thornton
Requirement A	Sales Budget
		October	November	December	Total
Total Budgeted Sale		$       400,000	$                  520,000	$       676,000	$ 1,596,000
Cash Sale		$       160,000	$                  208,000	$       270,400	$     638,400
Credit Sale		$       240,000	$                  312,000	$       405,600	$     957,600
Requirement B	Schedule of Cash Receipt
		October	November	December	Total		Receivables
Current Cash Sales		$       160,000	$                  208,000	$       270,400	$     638,400
Credit Sales			$                  240,000	$       312,000	$     552,000		$     405,600
Total		$       160,000	$                  448,000	$       582,400	$ 1,190,400		$     405,600
Requirement C	Inventory Purchase Budget
		October	November	December	Total
Budgeted Cost of Goods Sold		$       280,000	$                  364,000	$       473,200	$ 1,117,200
Add: Desired Ending Inventory		$         72,800	$                    94,640	$         13,500	$       13,500
Inventory Needed		$       352,800	$                  458,640	$       486,700	$ 1,130,700
Less: Beginning Invenotry			$                   -72,800	$        -94,640	0
Required Purchases		$       352,800	$                  385,840	$       392,060	$ 1,130,700
Requirement D	Schedule of Cash Payment Budget for Purchases:
		October	November	December	Total		Payable
Payment for Current Month Payable	70%	$       246,960	$                  270,088	$       274,442	$     791,490
Payment for Prior Month Payable			$                  105,840	$       115,752	$     221,592		$     117,618
Total Budgeted Payment for Inventory		$       246,960	$                  375,928	$       390,194	$ 1,013,082		$     117,618
Requirement E	Selling and Administrative Budget
		October	November	December	Total
Salary Expenses		$         19,500	$                    19,500	$         19,500	$       58,500
Sales Commission	4% of Sale	$         16,000	$                    20,800	$         27,040	$       63,840
Supplies Expense	2% of Sale	$            8,000	$                    10,400	$         13,520	$       31,920
Utilities		$            2,900	$                       2,900	$            2,900	$         8,700
Depreciation		$            5,500	$                       5,500	$            5,500	$       16,500
Rent		$            6,300	$                       6,300	$            6,300	$       18,900
Miscellaneous		$            2,700	$                       2,700	$            2,700	$         8,100
Total Selling and Admin Expense		$         60,900	$                    68,100	$         77,460	$     206,460
Less: Non Cash		$            5,500	$                       5,500	$            5,500	$       16,500
Cash disbursment for Selling and Admin		$         55,400	$                    62,600	$         71,960	$     189,960
Requirement F	Schedule of Cash Payment for S&A
		October	November	December	Total
Salary Expenses		$         19,500	$                    19,500	$         19,500	$       58,500
Sales Commission			$                    16,000	$         20,800	$       36,800
Supplies Expense		$            8,000	$                    10,400	$         13,520	$       31,920
Utilities			$                       2,900	$            2,900	$         5,800
Depreciation		$                   -	$                              -	$                   -	$                -
Rent		$            6,300	$                       6,300	$            6,300	$       18,900
Miscellaneous		$            2,700	$                       2,700	$            2,700	$         8,100
Total Payment for S&A Expenses		$         36,500	$                    57,800	$         65,720	$     160,020
Requirement G	Cash Budget
		October	November	December	Total
Beginning Cash Balance		$                   -	$                    27,540	$         27,000	$                -
Add: Cash Receipts		$       160,000	$                  448,000	$       582,400	$ 1,190,400
Cash Available		$       160,000	$                  475,540	$       609,400	$ 1,190,400
Cash Payment for:
Inventory Purchase		$       246,960	$                  375,928	$       390,194	$ 1,013,082
Selling and Admin Expense		$         36,500	$                    57,800	$         65,720	$     160,020
Store Furniture		$       167,000			$     167,000
Interest Expense					$                -
Total Budgeted Payment		$       450,460	$                  433,728	$       455,914	$ 1,340,102
Surplus/(Shortage)		$     -290,460	$                    41,812	$       153,486	$   -149,702
Financing:
Borrowing		$       318,000			$     318,000
Repayment			$                     -8,452	$     -120,295	$   -128,747
Interest Payment	2% PM		$                     -6,360	$          -6,191	$     -12,551
Ending Cash Balance		$         27,540	$                    27,000	$         27,000	$       27,000
Requirement H	Income Statement
Sales Revenue		$   1,596,000
Less: Cost of Goods Sold		$   1,117,200
Gross Margin		$       478,800
Selling and Administrative Expenses		$       206,460
Operating Income		$       272,340
Interest Expense		$         12,551
Net Income		$       259,789
Requirement I	Balance Sheet
Assets:
Cash		$         27,000
Accounts Receivable		$       405,600
Inventory		$         13,500
Equipment	$    167,000
Less: Accumulated Dep	$     -16,500	$       150,500
Total Assets		$       596,600
Liabilities:
Accounts Payable		$       117,618
Sales Commission Payable		$         27,040	December Month
Utilities Payable		$            2,900	December Month
Note Payable		$       189,253	From Cash Budget
Equity:
Stockholder Equity
Retained Earning		$       259,789	Net Income
Total Liabilities and Equity		$       596,600
Requirement J	Cash Flow
Cash flow from Operating Activites:
Collection From Customers		$   1,190,400
Inventory Purchase		$ -1,013,082
Selling and Admin Expense		$     -160,020
Interest Payment		$        -12,551
Total Cash flow from Operating Activites		$            4,747
Cash flow from Investing Activites:
Store Furniture		$     -167,000
Total Cash flow from Investing Activites		$     -167,000
Cash flow from Financing Activites:
Borrowing		$       189,253
Total Cash flow from Financing Activites		$       189,253
Net Cash Flow		$         27,000