Problem 8-19 Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

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

1. Sales are budgeted at $240,000 for May. Of these sales, $72,000 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 in the following month. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $118,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $31,500.

4. Selling and administrative expenses for May are budgeted at $93,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,400 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $160 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $15,000 will be purchased for cash during May.

7. During May, the company will borrow $26,600 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:

1. Calculate the expected cash collections from customers for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

3. Prepare a cash budget for May.

4. Prepare a budgeted income statement for May.

5. Prepare a budgeted balance sheet as of May 31.

Cutter Enterprises purchased equipment for $102,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,600.

Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: (Do not round depreciation rate per year)

Multiple Choice

• $25,440 and $44,760 respectively.

• $25,440 and $38,160 respectively.

• $27,200 and $40,800 respectively.

• $27,200 and $34,200 respectively.

According to the EY Foundation, over which data analytic techniques should accountants gain mastery?

Concord Ltd. and Riverbed Ltd. incurred the following merchandise transactions in June. June 10 Concord sold $4,400 of merchandise to Riverbed, terms 1/10, n/30, FOB shipping point. The merchandise cost Duvall $2,640 when it was originally purchased. 11 Freight costs of $190 were paid by the appropriate company. 12 Concord received damaged goods returned by Riverbed for credit. The goods were originally sold for $700; the cost of the returned merchandise was $420. The merchandise was not returned to inventory. 19 Concord received full payment from Riverbed.

Prepare journal entries for each transaction in the books of Concord Ltd., assuming (1) a perpetual inventory system is used, and (2) a periodic inventory system is used.

Preparing production and mfg. budgets

Black Diamond co produces snow skis. Each ski requlires 2 pounds of carbon fiber. Teh co. mangement predicts that 5000 skis and 6000 poiunds of carbon fiber will be ininvenotry of jun 30 of the cureent year andthat 150,000 skis will be sold during the next ( third ) quarter . A set of two skis sells for 300. Management wants to end the quarter with 3500 skis and 4000 pounds of carbon fiber in inventory. Carbon fiber can be purchasedd fo 15 per poiund. Each ski requires .5 hours of dircet labor at 20 per hour. Variable overhead is applies at the rate of 8 per direct labor hour. The company budgets fixed overheaddof 1,782,000 for quarter.

Make a direct materials budget for carbon

Bob is evaluating the merits of a potential investment in a drone manufacturing company. He already owns the land for the facility, but he would need to purchase and install the assembly machinery for $240,000. The machine falls into the MACRS 5-year class, and it will cost $20,000 to modify it for Bob's particular needs. A consultant, who charged Bob's $10,000 for his services, already completed the process of restructuring the facility for the required zoning and industry standards. The facility require additional net working capital of $5,000. Drone sales are expected to yield before tac revenues of $450,000 per year with labor costs of $200,000 per year and fixed costs of $175,000 per year. Bob expects the machine to be used for 5 years and then sold for $55,000.

Bob has asked you to evaluate his proposed project, and he has provided you with the following information about the investment.

Bob's firm has a target capital structure of 25% debt, 5% preferred stock, and 70% common equity. Its bonds have a 9% coupon, paid semiannually, a current mature of 20 years, and sell at par for $1,000. The firm could sell, at par, $100 preferred stock that pays a 5.75% annual dividend, but flotation costs of 4% would be incurred. The firm's beta is 1.25, the risk-free rate is 3%, and the expected rate of return on the market portfolio is 9.4%. The company is a constant growth firm that just paid a dividend of $2.00, sells for $30 per share, and has a growth rate of 5%. The firm's policy is to use a risk premium of 4% when using the bond-yield-plus-risk-premium method to find the cost of equity. The firm's marginal tax rate is 42%.

In addition to finding the firm's average-risk cost of capital, Bob has also asked you to calculate a risk-adjusted cost of capital. He believes that the project's cash flows for years 1 through 5 will increase by 10% in particularly good market, and the cash flows will decrease by 10% in a particularly bad market. He estimates that there is a 15% probability of a good market occurring, a 25% probability of a bad market occurring, and a 60% probability of an "average" market occurring.

To complete this task of calculating a risk-adjusted cost of capital, you will need to find the expected NPV, its standard deviation, and its coefficient of variation (CV). Bob informs you that his average project has a CV in the range of 1.0 to 2.0. If the CV of a project being evaluated is greater than 2.0, 2 percentage points are added to the cost of capital for the evaluation. Similarly, if the CV is less than 1.0, 1 percentage point is deducted from the cost of capital for the evaluation.

In the end, Bob wants to know whether to accept or reject the project. He expects you to make your conclusion using 3 techniques: discounted payback method, NPV analysis, and IRR analysis.

Throughout your analysis, you are to be as thorough as possible, documenting all of your work to support your conclusion. Please show the following calculations:

1) Bob's WACC for an average-risk project

2) Annual cash flow estimates for the project (including the initial outlay)

3) A Risk- adjusted cost of capital for this project

4) An accept/reject decision based on the above 3 techniques

The Quick Wash 24-hour Laundromat has 16 washing machines. A machine breaks down every 20 days (exponentially distributed). The repair service with which the Laundromat contracts takes an average of 1 day to repair a machine (exponentially distributed). A washing machine averages $5 per hour in revenue. The Laundromat is considering a new repair service that guarantees repairs in 0.50 day, but it charges $10 more per hour than the current repair service. Should the Laundromat switch to the new repair service. please put in excel format.

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,100 per month plus $0.07 per car washed. The company expected to wash 8,200 cars in August and to collect an average of $6.60 per car washed. The company actually washed 8,300 cars.

The actual operating results for August appear below.

Compute the company's activity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Problem 6-24 Companywide and Segment Break-Even Analysis; Decision Making [LO6-4, LO6-5] Toxaway Company is a merchandiser that segments its business into two divisions—Commercial and Residential. The company’s accounting intern was asked to prepare segmented income statements that the company’s divisional managers could use to calculate their break-even points and make decisions. She took the prior month’s companywide income statement and prepared the absorption format segmented income statement shown below:

Total Company Commercial Residential Sales $ 840,000 $ 280,000 $ 560,000 Cost of goods sold 557,200 154,000 403,200 Gross margin 282,800 126,000 156,800 Selling and administrative expenses 264,000 116,000 148,000 Net operating income $ 18,800 $ 10,000 $ 8,800 In preparing these statements, the intern determined that Toxaway’s only variable selling and administrative expense is a 10% sales commission on all sales. The company’s total fixed expenses include $78,000 of common fixed expenses that would continue to be incurred even if the Commercial or Residential segments are discontinued, $62,000 of fixed expenses that would be avoided if the Commercial segment is dropped, and $40,000 of fixed expenses that would be avoided if the Residential segment is dropped. Required: 1. Do you agree with the intern’s decision to use an absorption format for her segmented income statement? 2. Based on a review of the intern’s segmented income statement. a. How much of the company’s common fixed expenses did she allocate to the Commercial and Residential segments? b. Which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial and Residential segments: (a) sales, (b) cost of goods sold, or (c) gross margin? 3. Do you agree with the intern’s decision to allocate the common fixed expenses to the Commercial and Residential segments? 4. Redo the intern’s segmented income statement using the contribution format. 5. Compute the companywide break-even point in dollar sales. 6. Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division. 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $17,000 and $34,000, respectively, and to lower its companywide sales commission percentage from 10% to 5%. Calculate the new break-even point in dollar sales for the Commercial Division and the Residential Division.

Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,100 per month plus $0.09 per car washed. The company expected to wash 8,300 cars in August and to collect an average of $6.50 per car washed.

The actual operating results for August appear below.

Compute the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

The equity sections from Marshall Group’s 2016 and 2017 year-end balance sheets follow.

The following transactions and events affected its equity during year 2017.

General Ledger tab - Prepare journal entries for each transaction.

Cash Dividends tab - Calculate the amount of each cash dividend

Stock Dividend tab - Calculate the amount of retained earnings to be capitalized.

Of which are these are operating, investing, financing, and non-cash activities? Purchase of furniture for cash, deprecation expense, new long-term loan for operations, proceeds from sale of land, change in accounts payable, gain on sale of building, issuance of long-term notes payable, and conversion of bonds payable to common stock.

The budget process is often iterative and may involve a first, second, and even third round of discussions and updates with department managers/senior management. Given this situation, what could we do from an organizational standpoint to effectively keep track of all these changes and why is it important to build a flexible budget template?