Question

Kline Sisters Company operates a gift shop where peak sales and activity occur in the months of December and January. Data regarding the store's operations follow:

Sales are budgeted at $360,000 for January, 320,000 for February, and $250,000 for March and $240,000 in April.

Collections are expected to be 30% in the month of sale, 65% in the month following the sale, 3% in the second month following sale and 2% uncollectible.

The cost of goods sold is 76% of sales.

The company desires ending merchandise inventory to equal 13% of the following month's cost of goods sold. Payment for merchandise is made 50% in the month of purchase and 50% in the month following the purchase.

Monthly operating expenses to be paid in cash are $12,000.

Equipment purchases of $40,000 in February and $30,000 in March were paid in cash.

Monthly depreciation is $13,000.

Dividends of $48,000 were declared and paid in January.

Any borrowings must be in $1,000 increments at 12% annual interest. Assume interest accrues at the beginning of the month and is paid at the end of the month.

The company must maintain a minimum cash balance of $30,000.

Ignore income taxes.

All accounts receivable from December 31 will be collected in January and all accounts payable at December 31 will be paid in January.

The balance sheet as of December 31^st:

Kline Sisters Company
Balance Sheet
12/31/14
Assets:
Cash				$22,000
Net Accounts Receivable				$83,000
Merchandise Inventory				$36,000
Property Plant and Equipment			$1,600,000
Less: accumulated depreciation			$588,000	$1,012,000
Total Assets				$1,153,000
Liabilities & Stockholder's Equity
Accounts Payable				$190,000
Common Stock				$350,000
Retained Earnings				$613,000
Total liabilities and stockholder's equity				$1,153,000

Prepare the following budgets for each month January, February, March and Total for the quarter in good formin excel with proper use of formulas and formatting:

a.   Prepare a Schedule of Expected Cash Collections

What is the budgeted accounts receivable at March 31^st?

b.   Prepare a Merchandise Purchases Budget and a Schedule of Expected Cash Disbursements

What is the budgeted accounts payable at March 31^st?

c.   Prepare a Cash Budget

How much does the company need to borrow for the quarter?

How much can the company repay for the quarter?

d.   Prepare a Budgeted Income Statement

Please highlight your answers.

Answer 1

ans a
	Jan	Feb	Mar	Total
Sales	360000	320000	$250,000	930000
Schedule of Expected Cash Collections
From Accounts Receivable	83000			83000
From Jan sales (30%,65%,3%*360000)	108000	234000	10800	352800
From Feb sales (30,65%)*320000		96000	208000	304000
From mar (30%)			$75,000.0	75000
Total Collectios	191000	330000	293800	814800
Gross Accounts receivable 250000*70%	175000
Net Accounts receivable 250000*68%	170000
Total
Mercandise Purchases Budget
	Jan	Feb	Mar	Total	April
Budgeted Cost of Goods Sold (76%*sales)	$273,600	$243,200	$190,000	$706,800	$182,400
Add Desired Ending Inventory (13%*next COGS	$31,616	$24,700	$23,712.0	$23,712.0
Total Needs	$305,216	$267,900	$213,712	$730,512
Less Beginning Inventory	$36,000	$31,616	$24,700	$36,000
Required Purcahses	$269,216	$236,284	$189,012	$694,512
Schedule of Expected Cash Disbursements- Merchandise Purchases
	Jan	Feb	Mar	Total
Payment in curent month (50%)	$134,608	$118,142	$94,506	$347,256
Payment in prior month (50% of prior month)\	$190,000	$134,608	$118,142	$442,750
Total Disbursements	$324,608	$252,750	$212,648	$790,006
Accounts payable as on 31 March	$94,506
Cash Budget
	Jan	Feb	Mar
Beginnning Cash Balance	22,000	$30,392	$30,000
Add Cash Collections	191,000	330,000	293,800
Total Cash Available	213,000	360,392	323,800
Less Payments
For Inventory Purchases	$324,608	$252,750	$212,648
Payment of operating expenses	12000	12000	12000
Payment of Equipent		40000	30000
Payment of Dividend	48000	0	0
Total Cash Disbursements	$384,608	$304,750	$254,648
Excess(Deficiency) of Cash	($171,608)	$55,642	$69,152
Financing:
Borrowings: (172000+30000)	202000
Repayments:		($21,602)	($37,348)
		(55642-4040-30000)	(69152-236-30000)
Interest expenses		-4040	-1804
Total Financing	202000	-25642	-39152
Ending Cash Balance	$30,392	$30,000	$30,000
Income statement
Sales	$930,000
Less: cost of good sold	$706,800
Gross profit	$223,200
Less: Operating expenses (12000+13000)*3	75000
Operating income	$148,200
Interest expenses	0
Net Income	$148,200