Question

The corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

Sales are budgeted at $250,000 for November, $270,000 for December, and 235,000 for January

Cash collections expected to be 246,000 for Nov, 273,000 for Dec, and 244,000 for Jan

Cost of goods sold = 65%

Cash disbursements for food product purchases are expected to be 197,000 for nov, 202,000 for Dec, and 188,000 for Jan

Other monthly expenses to be paid in cash are 52,000

Monthly Depreciation 8,000

comp declares and pays monthly dividends of 2,000

Oct, 31 balance sheet shows a cash balance of 20,000 and retained earning balance of 156,000

The company policy requires that the company maintain a minimum cash balance of 20,000 at the end of each month

ignore taxes.

1 a.) the excess (deficiency) for November would be:

1.b) In order to meet the minimum cash balance requirement at the end of November the company will need to borrow:

1.c) the net income(loss) for November would be:

1.d) what is the retained earnings for the end of November

Answer 1

Summary of Answers-

1 a.) the excess for November (Cash Budget for November)	$15,000
1.b) In order to meet the minimum cash balance requirement at the end of November the company will need to borrow (Cash Budget for November)	$5,000
1.c) the net income for November would be (Income statement)	$25,500
1.d) what is the retained earnings for the end of November (Statement of Retained Earning)	$179,500

For detailed and further explanation, the following budget/statements can be considered-  

Cash Budget (For November only)

Particulars	Amount ($)
Balance at the beginning	20,000
Add- Budgeted Cash Receipts-
Collection from customers	246,000
Total Cash Available for Use (A)	266,000
Less: Cash Disbursements-
Cash payments for direct materials	197,000
Monthly expenses	52,000
monthly dividends	2,000
Total Disbursements (B)	251,000
Cash excess (A-B)	15,000
Borrowing to maintain a minimum cash balance ($20,000-$15,000)	5,000
Balance at end	20,000

Note-Depreciation is a non-cash item, hence not shown in the cash budget.

Income statement

Particulars	Amount ($)	Amount ($)
Net sales		2,50,000
Less-Cost of goods sold (65% of Net sales)	162500	162500
Gross profit		87,500
Less-Operating Expenses-
Other Monthly expenses	52,000
Monthly dividends	2000
Depreciation	8000	62,000
Net Income		25,500

Statement of Retained Earnings

Particulars	Amount ($)
Retained earning as on 01 November	1,56,000
Add-Net Income during the month of Nov.	25,500
	181,500
Less-Monthly dividends	2,000
Retained earning as on 30 November	$179,500

In case of any doubt/confusion, please mention it, in the comment box.

Thanks.