Question

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

Answer 1

	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 Next > < Previous Related Solutions 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. 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