Question

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	$	7,000
Accounts receivable		75,000
Inventory		39,000
Buildings and equipment, net of depreciation		530,000
Total assets	$	651,000
Liabilities and Stockholders' Equity
Accounts payable	$	113,000
Note payable		18,000
Capital stock		450,000
Retained earnings		70,000
Total liabilities and stockholders' equity	$	651,000

The company is in the process of preparing a budget for June and has assembled the following data:

a.	Sales are budgeted at $280,000 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 $170,000 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 $50,000 .
d.	Selling and administrative expenses for June are budgeted at $54,000 , exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,300 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 $8,000 will be purchased for cash during June.
g.	During June, the company will borrow $21,000 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.

       

Answer 1

1a. Schedule of expected cash collections:

	$
Cash Sales	60,000
Collection of Sales of Current Month	110,000
Collection of Sales of Previous Month	75,000
Total	245,000

Schedule of Expected Cash Disbursements:

Disbursements for Purchases of	$
Previous Month	113,000
Current Month	68,000
Total	181,000

1b. Snapshot Inc.

Cash Budget

For the month ended June 30

	$	$
Beginning Cash Balance		7,000
Add: Cash Receipts		245,000
Add: Borrowing		21,000
Total Cash Available		273,000
Less: Cash Disbursements for
Inventory Purchases	181,000
Selling and Administrative Expenses	54,000
Repayment of Note Payable	18,000
Interest Expense	600
Purchase of Equipment	8,000
Total Cash Disbursement		261,600
Ending Cash Balance		11,400

2. Snapshot Inc.

Budgeted Income Statement

For the month ended June 30

Sales		$ 280,000
Less: Cost of Goods Sold
Beginning Inventory	39,000
Add: Purchases	170,000
Less: Ending Inventory	(50,000)	159,000
Gross Profit		121,000
Operating Expenses
Selling and Administrative Expenses	54,000
Depreciation	2,300
Total Operating Expenses		56,300
Income from Operations		64,700
Interest Expense		600
Net Income		64,100

3. Snapshot Inc.

Budgeted Balance Sheet

June 30

Assets	$
Cash	11,400
Accounts Receivable	110,000
Inventory	50,000
Buildings and Equipment, net of depreciation	535,700
Total Assets	707,100
Liabilities and Stockholders' Equity
Accounts Payable	102,000
Note Payable	21,000
Common Stock	450,000
Retained Earnings	134,100
Total Liabilities and Stockholdrs' Equity	707,100