Question

In: Accounting

The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is...

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.

       

Solutions

Expert Solution

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

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