Question

Baird 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 $300,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 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 $12,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	18,100
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	1,500
Depreciation on store fixtures (fixed)*	$	4,100
Rent (fixed)	$	4,900
Miscellaneous (fixed)	$	1,300

*The capital expenditures budget indicates that Baird will spend $119,400 on October 1 for store fixtures, which are expected to have a $21,000 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.

Baird 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 $13,000 cash cushion. Prepare a cash budget.

Required I

Required J

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

BAIRD COMPANY Pro Forma Balance Sheet December 31, 2019 Assets Accounts receivableselected answer correct not attempted $259,200selected answer correct Inventoryselected answer correct not attempted 12,100selected answer correct Cashselected answer correct not attempted 13,000selected answer correct Store fixturesselected answer correct $119,400selected answer correct Less: Accumulated depreciationselected answer correct (12,300)selected answer correct not attempted 107,100 Total assets $391,400 Liabilities Accounts payableselected answer correct not attempted $50,804selected answer correct Sales commissions payableselected answer correct not attempted 17,280selected answer correct Utilities payableselected answer correct not attempted 1,500selected answer correct Line of credit liabilityselected answer correct not attempted 162,688selected answer incorrect not attempted not attempted not attempted Equity Retained earningsselected answer correct not attempted 159,128selected answer incorrect not attempted not attempted not attempted Total liabilities and equity $391,400

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

BAIRD COMPANY Pro Forma Statement of Cash Flows For the Quarter Ended December 31, 2019 Cash flows from operating activities Cash receipts from customersselected answer correct not attempted Cash payments for inventoryselected answer correct not attempted Cash payments for selling and administrative expensesselected answer correct not attempted Cash payments for interest expenseselected answer correct not attempted Net cash flows from operating activities $0 Cash flows from investing activities Cash payment for store fixturesselected answer correct (119,400)selected answer correct Cash flow from financing activities Net inflow from line of creditselected answer correct not attempted Net increase in cashselected answer correct not attempted Plus: Beginning cash balanceselected answer correct not attempted not attempted $0

Answer 1

Sales Budget	October	November	December	Qtr
total sales (20% increase over previous month) T	$300,000	$360,000	$432,000	$1,092,000
cash sales (40% of total sales) C	$120,000	$144,000	$172,800	$436,800
sales on account S=T-C	$180,000	$216,000	$259,200	$655,200
CASH RECEIPTS BUDGET	October	November	December	Qtr
cash sales	$120,000	$144,000	$172,800	$436,800
Cash collection from preceeding month (100%*S)	0	$180,000.0	$216,000.0	$396,000.0
total	$120,000	$324,000	$388,800	$832,800
PURCHASES BUDGET	October	November	December	Qtr
Budgeted cost of goods sold (70%*T)	$210,000.0	$252,000.0	$302,400.0	$764,400
Add: Desired ending inventory (20*next month COGS)	$50,400.0	$60,480.0	$12,100.00	$12,100.00
Total Goods Needed	$260,400.0	$312,480.0	$314,500.0	$776,500.0
Less: Expected beginning inventory	$0.0	$50,400.0	$60,480.0	$0.0
Purchases	$260,400.0	$262,080.0	$254,020.0	$776,500.0
CASH DISBURSEMENTS BUDGET	October	November	December	Qtr
Inventory Purchases	$260,400.0	$262,080.0	$254,020.0	$776,500.0
Cash payments from purchases made during current month (80%*Purchases)	$208,320.0	$209,664.0	$203,216.0	$621,200.0
Cash payments from purchases during preceding month (20% *Purchases)	0	$52,080.0	$52,416.0	$104,496.0
Total cash payments for inventory purchases M	$208,320.0	$261,744.0	$255,632.0	$725,696.0
Budgeted Selling & administrative expenses
Salaries expenses	18100	18100	18100	54300
Sales commissions (4%*total sales)	$12,000	$14,400	$17,280	31680
Supplies (2%)	$6,000	$7,200	$8,640	15840
Utilities	1500	1500	1500	4500
Rent expenses	4900	4900	4900	14700
Depreciation	4100	4100	4100	12300
Miscelleneous expenses	1300	1300	1300	3900
Budgeted Selling & administrative expenses	47900	51500	55820	137220
cash payments budget for selling and administrative expenses.
Salaries expenses	18100	18100	18100	54300
Sales commissions (4%*total sales)	0	$12,000	$14,400	26400
Supplies (2%)	$6,000	$7,200	$8,640	21840
Utilities	0	1500	1500	3000
Rent expenses	4900	4900	4900	14700
Miscelleneous expenses	1300	1300	1300	3900
Total Cash ayments for S & A expenses	30300	45000	48840	124140

Cash Budget
	October	November	December	Qtr
Beginnning Cash Balance	0	$13,980	$13,000	0
Add Cash Collections	120,000	324,000	388,800	832,800
Total Cash Avail	120,000	337,980	401,800	832,800
Less Cash Disbursements
For Inventory	$208,320	$261,744	$255,632	$725,696
For Selling & administrative Expenses (excluding dep)	30300	45000	48840	124140
Purchase of Store & fixtures	119400			119400
Total Cash Disbursements	$358,020	$306,744	$304,472	$969,236
Excess(Deficiency) of Cash	($238,020)	$31,236	$97,328	($136,436)
Financing:
Borrowings:	252000	0		252000
Repayments:		-8156	-79451	-87607
		(31236-10080-13000)	(97328-4877-13000)
Interest:		-10080	-4877	-14957
			(252000-8156)*2%
Total Financing	252000	-18236	-84328	149436
Ending Cash Balance	$13,980	$13,000	$13,000	$13,000
Interet: (252000*4%)	10080
working
Income Statement
Sales	$1,092,000
Less: cost of Good sold	$764,400
Gross Profit	$327,600
Less: Selling & administrative expenses	137220
Net operating Inocme	$190,380
Interest	-14957
Net Income	$175,423