In: Accounting
The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is given below: |
Snapshot, Inc. Balance Sheet May 31 |
||
Assets | ||
Cash | $ | 5,000 |
Accounts receivable | 89,000 | |
Inventory | 40,000 | |
Buildings and equipment, net of depreciation | 670,000 | |
Total assets | $ | 804,000 |
Liabilities and Stockholders' Equity | ||
Accounts payable | $ | 87,000 |
Note payable | 32,000 | |
Capital stock | 590,000 | |
Retained earnings | 95,000 | |
Total liabilities and stockholders' equity | $ | 804,000 |
The company is in the process of preparing a budget for June and has assembled the following data: |
a. |
Sales are budgeted at $430,000 for June. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected the following month. All of the May 31 accounts receivable will be collected in June. |
b. |
Purchases of inventory are expected to total $340,000 during June. These purchases will all be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June. |
c. | The June 30 inventory balance is budgeted at $30,000 . |
d. |
Selling and administrative expenses for June are budgeted at $70,000 , exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,700 for the month. |
e. |
The note payable on the May 31 balance sheet will be paid during June. The company’s interest expense for June (on all borrowing) will be $600 , which will be paid in cash. |
f. | New warehouse equipment costing $12,000 will be purchased for cash during June. |
g. |
During June, the company will borrow $35,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year. |
Required: | |
1a. |
Prepare schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases. |
1b. |
Prepare a cash budget for June. |
2. | Prepare a budgeted income statement for June using the absorption costing income statement format. |
3. | Prepare a budgeted balance sheet as of June 30. |
Solution:
1 a) Preparing schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases:
Snapshot Inc. Schedule of Expected Cash Collections |
|
Cash sales- June | $60,000 |
Collection on accounts receivables for June [($430,000-$60,000)*0.50] | $185,000 |
May 31 balance | $89,000 |
Total cash receipts | $334,000 |
Snapshot Inc. Schedule of Expected Cash Disbursements |
|
May 31 accounts payable balance | $87,000 |
June purchases ($340,000 * 40%) | $136,000 |
Total cash payments | $223,000 |
1 b) Preparing a Cash Budget for June:
Snapshot Inc. Cash Budget for the month of June |
|
Cash balance beginning | $5,000 |
Receipts from customers(schedule of expected cash collection) | $334,000 |
Total cash available | $339,000 |
Purchase of inventory( schedule of expected cash disbursements) | $223,000 |
Selling and administrative expenses (from d) | $70,000 |
Purchase of equipment (from f) | $12,000 |
Total cash disbursements | $305,000 |
Excess of receipts over disbursements | $34,000 |
Borrowing - note (from g) | $35,000 |
Repayments- note | $32,000 |
Interest (from e) | $600 |
Total financing | $2,400 |
Cash balance, ending | $36,400 |
2) Preparing a Budgeted Income Statement for June using the Absorption Costing Income Statement:
Snapshot Inc. Budgeted Income Statement for the month of June |
|
Sales | $430,000 |
Beginning inventory | $40,000 |
Purchases | $340,000 |
Goods available for sale | $380,000 |
Ending inventory | $30,000 |
Cost of goods sold | $350,000 |
Gross margin | $80,000 |
Selling and administrative expenses | $73,700 |
Net operating income | $6,300 |
Interest expenses | $600 |
Net income | $5,700 |
3) Preparing a Budgeted Balance Sheet at June 30:
Snapshot Inc. Budgeted Balance sheet for the month of June |
|
Assets | |
Cash | $36,400 |
Accounts receivables [($430,000-$60,000)*0.50] | $185,000 |
Inventory | $30,000 |
Buildings, net of depreciation ($670,000+$12,000-$3,700) | $678,300 |
Total assets | $929,700 |
Liabilities | |
Accounts payable ($340,000 * 0.6) | $204,000 |
Notes payable | $35,000 |
Capital stock | $590,000 |
Retained earning ($95,000 + $5,700) | $100,700 |
Total liabilities and stockholder's equity | $929,700 |