Question
In: Accounting
Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has...
Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has assembled the following data to assist in preparing its master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
|
Debits |
Credits |
|
|
Cash |
$ 50,000 |
|
|
Accounts Receivable |
162,500 |
|
|
Inventory |
58,000 |
|
|
Buildings and Equipment (net) |
370,000 |
|
|
Accounts Payable |
$ 65,000 |
|
|
Capital Stock |
412,500 |
|
|
Retained Earnings |
163,000 |
|
|
$640,500 |
$640,500 |
b. Actual sales for November and December, along with budgeted sales for the next four months, are as follows:
|
November (actual) |
$250,000 |
|
December (actual) |
$300,000 |
|
January |
$300,000 |
|
February |
$650,000 |
|
March |
$350,000 |
|
April |
$200,000 |
c. Sales are 50% for cash sales and 50% for credit sales. Credit sales are collected in the two months following the sale: 90% the month after the sale, 10% two months after the sale. The accounts receivable at December 31 are a result of November and December credit sales.
d. The company’s gross margin is 45% of sales. (In other words, cost of goods sold is 55% of sales.)
e. Monthly salary and wage expenses are budgeted as follows: salaries and wages, $27,000 per month for the first two months, $26,000 in March as Sweet cuts the hours of its sales force to reflect declining sales.
f. Other monthly expenses are as follows: advertising $80,000 per month; shipping cost is 5% of total monthly sales revenues, and other expenses are 3% of sales revenues. Depreciation, including depreciation on new assets acquired during the quarter, will be $40,000 for the quarter.
g. Each month’s ending inventory should equal 10% of the following month’s cost of goods sold.
h. One-half of a month’s inventory purchases are paid for in the month of purchase; the other half is paid in the following month.
i. During January, the company will purchase a new copy machine for $2,000 cash. During March, other equipment will be purchased for cash at a cost of $79,500.
j. During January, the company will declare and pay $38,000 in cash dividends.
k. The company must maintain a minimum cash balance of $40,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 6%. (Figure interest on whole months, e.g., 2/12, 3/12.)
l. The company does not pay any income taxes.
Required:
Using the data above, complete the following statements and schedules for the first quarter:
1. Prepare a sales budget for the quarter ending on March 31, 20XX.
2. Schedule of expected cash collections:
3a. Merchandise purchases budget:
b. Schedule of expected cash disbursements for merchandise purchases:
4. Schedule of expected cash disbursements for selling and administrative expenses:
5. Cash budget:
6. Prepare an income statement that conforms to GAAP specifications for the quarter ending March 31, 20XX.
7. Prepare a balance sheet as of March 31, 20XX.
**PLEASE SHOW WORK**
Solutions
Expert Solution
| Sweet Company | ||||||||
| Answer 1 | November | December | January | February | March | Quarter | April | Note |
| Budgeted Sales Revenue | 250,000.00 | 300,000.00 | 300,000.00 | 650,000.00 | 350,000.00 | 1,300,000.00 | 200,000.00 | A |
| Cash sale is 30% | 125,000.00 | 150,000.00 | 150,000.00 | 325,000.00 | 175,000.00 | 650,000.00 | 100,000.00 | B=A*50% |
| Credit sale is 70% | 125,000.00 | 150,000.00 | 150,000.00 | 325,000.00 | 175,000.00 | 650,000.00 | 100,000.00 | C=A*50% |
| Answer 2 | January | February | March | Total | Note |
| 90% of Credit sale in the next month | 135,000.00 | 135,000.00 | 292,500.00 | 562,500.00 | D= 90% of C of previous month |
| 10% of Credit sale in the second month | 12,500.00 | 15,000.00 | 15,000.00 | 42,500.00 | E= 10% of C of previous to previous month |
| Total Scheduled Collections | 147,500.00 | 150,000.00 | 307,500.00 | 605,000.00 | |
| Answer 3 a | January | February | March | Total | April | Note |
| Monthly Sales Budget | 300,000.00 | 650,000.00 | 350,000.00 | 1,300,000.00 | 200,000.00 | See A |
| Cost of goods sold at 55% | 165,000.00 | 357,500.00 | 192,500.00 | 715,000.00 | 110,000.00 | F=A*55% |
| Add: Closing | 35,750.00 | 19,250.00 | 11,000.00 | 11,000.00 | G= 10% of F of next month. | |
| Material needed | 200,750.00 | 376,750.00 | 203,500.00 | 726,000.00 | ||
| Less: Opening | 58,000.00 | 35,750.00 | 19,250.00 | 58,000.00 | I= 10% of F of same month. For January refer Balance Sheet provided in the question. | |
| Purchases Budget | 142,750.00 | 341,000.00 | 184,250.00 | 668,000.00 | I |
| Answer 3 b | January | February | March | Total | Note |
| Material Purchase Budget | 142,750.00 | 341,000.00 | 184,250.00 | 668,000.00 | See I |
| 50% paid in the same month | 71,375.00 | 170,500.00 | 92,125.00 | 334,000.00 | J= 50% of I of same month |
| 50% paid in the next month | - | 71,375.00 | 170,500.00 | 241,875.00 | K= 50% of I of previous month |
| Payment for Dec 31, 2020 accounts payable | 65,000.00 | - | - | 65,000.00 | |
| Cash disbursements for merchandise purchase | 136,375.00 | 241,875.00 | 262,625.00 | 640,875.00 | L |
| Answer 4 | April | May | June | Total | Note |
| Advertising | 80,000.00 | 80,000.00 | 80,000.00 | 240,000.00 | |
| Shipping cost at 5% | 15,000.00 | 32,500.00 | 17,500.00 | 65,000.00 | M= A*5% |
| Other expenses at 3% | 9,000.00 | 19,500.00 | 10,500.00 | 39,000.00 | N= A*3% |
| Cash disbursements for selling and administrative expenses | 104,000.00 | 132,000.00 | 108,000.00 | 344,000.00 |
| Answer 5 | January | February | March | Total |
| Beginning Cash Balance | 50,000.00 | 78,125.00 | 152,250.00 | 50,000.00 |
| Plus: Cash sales | 150,000.00 | 325,000.00 | 175,000.00 | 650,000.00 |
| Plus: Collections | 147,500.00 | 150,000.00 | 307,500.00 | 605,000.00 |
| Cash Available | 347,500.00 | 553,125.00 | 634,750.00 | 1,305,000.00 |
| Disbursements | ||||
| Cash disbursement to suppliers | 136,375.00 | 241,875.00 | 262,625.00 | 640,875.00 |
| Wages | 27,000.00 | 27,000.00 | 26,000.00 | 80,000.00 |
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general ledger showed the following account balances:
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