Question
In: Accounting
Nadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data...
Nadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data has been assembled to assist in preparation of the master budget for the second quarter.
a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances:
| Cash | $9,000 | |
| Acct Receviable | 48,000 | |
| Inventory | 12,6000 | |
| Buildings & Equip. (net) | 214,100 | |
| Acct. Payable | 18,300 | |
| Common Stock | 190,000 | |
| Retained Earnings | 75,400 | |
| Totals | 283,700 | 283,700 |
b. Sales for March total 10,000 units. Each month’s sales are expected to exceed the prior month’s results by 5%. The product selling price is $25.00 per unit.
c. Sales are 20% for the cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales.
d. Company’s policy calls for a given month’s ending inventory to equal 80% of the next month’s expected unit sales. The March 31 inventory is 8,400 units, which complies with the policy. The purchase price is $15.
e. Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $7500 per month; shipping 6% of sales; advertising, $6,000 per month; other expenses, 4% of sales. Depreciation including depreciation on new assets acquired during the quarter, will be $6,000 for the quarter. Sales representatives’ commissions are 12.5 % of sales and are paid in the month of the sales. The sales manager’s salary will be $3,500 in April and $4,000 per month thereafter.
f. Half a month’s inventory purchases are paid in the month of purchase and half in the following month.
g. Equipment purchases during the quarter will be as follows: April, $11,500; and May, $3,000.
h. Dividends totaling $3,500 will be declared and paid in June.
j. No cash payment for income taxes are to be made during the second calendar quarter. Income taxes will be assessed at 35% for the quarter.
k. Management wants to maintain a minimum cash balance of $8,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total balance of $20,000. The interest rate of these loans is 1% per month, and for simplicity, we will assume that the interest is not compounded. The company would as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required: Using the above data, complete the following statements and schedules for the second quarter.
1. Expected cash receipts from customers
2. Expected cash payments for purchases
3. Cash budget
Solutions
Expert Solution
| Particulars | Amount | |||||
| Opening Accounts receivable as at April | 48,000 | |||||
| Closing accounts receivable as at June | 231,525 | |||||
| Opening Accounts payable as at April | 18,300 | |||||
| Closing Accounts payable as at June | 72,930 | |||||
| Total Purchases | April | May | June | July | ||
| Purchase unit | 8,820 | 9,261 | 9,724 | |||
| Purchase per unit | 15 | 15 | 15 | |||
| Total purchase cost | 132,300 | 138,915 | 145,861 | |||
| Payment for Purchases | ||||||
| Cash payment | 66,150 | 69,458 | 72,930 | |||
| Credit payment | 63,000 | 66,150 | 69,458 | 72,930 | ||
| Solution 2 | Total Purchase payment | 129,150 | 135,608 | 142,388 | ||
| Total sales | ||||||
| Particulars | April | May | June | July | ||
| Sales unit | 10,500 | 11,025 | 11,576 | 12,155 | ||
| Rate per unit | 25 | 25 | 25 | |||
| Total sales cost | 262,500 | 275,625 | 289,406 | |||
| Collection of sales | ||||||
| Cash collection | 52,500 | 55,125 | 57,881.25 | |||
| Credit collection | 48,000 | 210,000 | 220,500 | 231,525 | ||
| Solution 1 | Total sales collection | 100,500 | 265,125 | 278,381 | ||
| Solution 3 | Cash Budget | |||||
| Particulars | April | May | June | Total | ||
| Opening cash | 9,000 | 9,000 | ||||
| Borrowings from bank | 19,000 | 19,000 | ||||
| Receipts | Cash collection | 100,500 | 265,125 | 278,381 | 644,006 | |
| Total receipts | 109,500 | 265,125 | 297,381 | 672,006 | ||
| Payments | Cash payment | (129,150) | (135,608) | (142,388) | (407,145) | |
| Salaries and wages | (7,500) | (7,500) | (7,500) | (22,500) | ||
| Shipping | (15,750) | (16,538) | (17,364) | (49,652) | ||
| Advertising | (6,000) | (6,000) | (6,000) | (18,000) | ||
| Other expenses | (10,500) | (11,025) | (11,576) | (33,101) | ||
| Commission | (32,813) | (34,453) | (36,176) | (103,441) | ||
| Salary of sales manager | (3,500) | (4,000) | (4,000) | (11,500) | ||
| Purchase of equipment | (11,500) | (3,000) | - | (14,500) | ||
| Dividend | - | - | (3,500) | (3,500) | ||
| Interest on loan | - | - | 190 | 190 | ||
| Total payments | (216,713) | (218,123) | (228,314) | (663,150) |
 ekkarill92 answered 1 year agoRelated SolutionsNadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data...Nadia Company, a merchandising company, prepares its master
budget on a quarterly basis. The following data has been assembled
to assist in preparation of the master budget for the second
quarter.
a. As of March 31 (the end of the prior quarter), the company’s
balance sheet showed the following account balances:
Cash
$9,000
Acct Receviable
48,000
Inventory
12,6000
Buildings & Equip. (net)
214,100
Acct. Payable
18,300
Common Stock
190,000
Retained Earnings
75,400
Totals
283,700
283,700
b. Sales for March total...
Nadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data...Nadia Company, a merchandising company, prepares its master
budget on a quarterly basis. The following data has been assembled
to assist in preparation of the master budget for the second
quarter.
a. As of March 31 (the end of the prior quarter), the company’s
balance sheet showed the following account balances:
Cash
$9,000
Acct Receviable
48,000
Inventory
12,6000
Buildings & Equip. (net)
214,100
Acct. Payable
18,300
Common Stock
190,000
Retained Earnings
75,400
Totals
283,700
283,700
b. Sales for March total...
Nadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data...Nadia Company, a merchandising company, prepares its master
budget on a quarterly basis. The following data has been assembled
to assist in preparation of the master budget for the second
quarter.
a. As of March 31 (the end of the prior quarter), the company’s
balance sheet showed the following account balances:
Cash
$9,000
Accounts receivable
48,000
Inventory
12,600
Buildings and equipment (net)
214,100
Accounts payable
18,300
Common Stock
190,000
Retained earnings
75,400
Totals
$283,700...
Nadia Company, a merchandising company, prepares its master budget on a quarterly basis. The following data...Nadia Company, a merchandising company, prepares its master
budget on a quarterly basis. The following data has been assembled
to assist in preparation of the master budget for the second
quarter.
a. As of March 31 (the end of the prior quarter), the company’s
balance sheet showed the following account balances:
Cash
$9,000
Accounts receivable
48,000
Inventory
12,600
Buildings and equipment (net)
214,100
Accounts payable
18,300
Common Stock
190,000
Retained earnings
75,400
Totals
$283,700...
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Hancock Company, a merchandising company, prepares its master
budget on a quarterly basis. The following data have been assembled
to assist in preparation of the master budget for the second
quarter.
a.
As of December 31 (the end of the prior quarter), the company’s
balance sheet showed the following account balances:
Cash
$
13,100
Accounts receivable
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Inventory
18,620
Buildings and equipment (net)
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Accounts payable
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Common stock
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As of December 31 (the end of the prior quarter), the company’s
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