Question

ABCCompany, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter: a. As of December 31 (the end of the prior quarter), the company's general ledger showed the following account balances: Debit Credit Cash $48,000 Accounts receivable 224,000 Inventory 60,000 Buildings and equipment (net) 370,000 Accounts payable $93,000 Capital shares 500,000 Retained earnings 109,000 $702,000 $702,000 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) $280,000 January 400,000 February 600,000 March 300,000 April 200,000 c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. d. The company's gross margin is 40% of sales. e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales. f. At the end of each month, inventory is to be on hand equal to 25% of the following month's sales needs, stated at cost. g. 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. h. During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. i. During January, the company will declare and pay $45,000 in cash dividends. j. The company must maintain a minimum cash balance of $30,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.) Required: Using the above data, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections. 2. Inventory purchases budget. 3. Schedule of cash disbursements for purchases. 4. Schedule of cash disbursements for expenses. 5. Cash budget. 6. Income statement for the quarter ending March 31 7. .Balance sheet as of March 31.

Answer 1

1. Schedule of Expected Cash Collections:

	January	February	March	Total
	$	$	$	$
Cash Sales	80,000	120,000	60,000	260,000
Collection of Credit Sales of
December	224,000			224,000
January		320,000		320,000
February			480,000	480,000
Total	304,000	440,000	540,000	1,284,000

2. Inventory Purchases Budget:

	January	February	March	April
Budgeted Cost of Goods Sold ( 60% of Sales)	240,000	360,000	180,000	120,000
Desired Ending Inventory ( 25% of next month COGS)	90,000	45,000	30,000
Total Inventory Needs	330,000	405,000	210,000
Less: Beginning Inventory	60,000	90,000	45,000
Required Inventory Purchases	270,000	315,000	165,000

3. Schedule of Cash Disbursements for Purchases:

	January	February	March	Total
	$	$	$	$
Disbursements for Purchases of
December	93,000			93,000
January	135,000	135,000		270,000
February		157,500	157,500	315,000
March			82,500	82,500
Total	228,000	292,500	240,000	760,500

4. Schedule of Cash Disbursements for Expenses:

	January	February	March	Total
Salaries and Wages	27,000	27,000	27,000	81,000
Advertising	70,000	70,000	70,000	210,000
Shipping ( 5% of Sales)	20,000	30,000	15,000	65,000
Other Expenses ( 3% of Sales)	12,000	18,000	9,000	39,000
Total Cash Expenses	129,000	145,000	121,000	395,000
Depreciation	14,000	14,000	14,000	42,000