Question

Dils Brother Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2017.

Dils Brother Department Store Balance Sheet March 31, 2017
Assets		Liabilities and Stockholders' Equity
Cash	$ 4,000	Accounts payable	$31,000
Accounts receivable	31,000	Dividends payable	15,000
Inventory	36,000	Rent payable	3,000
Prepaid Insurance	3,000	Stockholders' equity	50,000
Fixtures	25,000
Total assets	$99,000	Total liabilities and equity	$99,000

Actual and forecasted sales for selected months in 2017 are as follows:

Month	Sales Revenue
January	$ 70,000
February	60,000
March	50,000
April	60,000
May	70,000
June	80,000
July	100,000
August	90,000

Monthly operating expenses are as follows:

Wages and salaries	$ 27,000
Depreciation	100
Utilities	1,500
Rent	3,000

Cash dividends of $15,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's cost of sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

(a) Prepare a purchases budget for each month of the second quarter ending June 30, 2017.

(b) Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2017. Do not include borrowings.

C. Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2017. Do not include repayments of borrowings.

(d) Prepare a cash budget for each month of the second quarter ending June 30, 2017. Include budgeted borrowings and repayments.

e. Prepare an income statement for each month of the second quarter ending June 30, 2017.

f. Prepare a budgeted balance sheet as of June 30, 2017.

Answer 1