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Prepare a balance sheet
Course:- Accounting Basics
Reference No.:- EM13111142




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Completing a Master Budget

(LO2, LO4, LO7, L08, LO9, LO10)

CHECK FIGURE

(2a) February purchases: $254,800

(4) February ending cash balance: $30,400

Spektra Company, a home furnishings store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the 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.................................................

mce_markernbsp; 31,000

 

 

Accounts Receivable       ..............

135,000

 

 

Inventory.........................................

161,700

 

 

Building and Equipment (net).....

160,000

 

 

Accounts Payable..........................

 

$178,000

 

Capital Stock..................................

 

65,000

 

Retained Earnings..........................

            0

  244,700

 

 

$487,700

$487,700

  b.   Actual sales for December and budgeted sales for the next four months are as follows:

 

December (actual)...

$300,000

 

January......................

$330,000

 

February....................

$350,000

 

March.........................

$370,000

 

April............................

$360,000

 

  c.   Sales are 55% for cash and 45% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

  d.   The company's gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

  e.   Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $15,000 per month; shipping, 4% of sales; other expense, 8% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $24,000.

        Each month's ending inventory should equal 70% of the following month's cost of goods sold.

  g.   25% of a month's inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month.

  h.   During February, the company will purchase land for $22,000 cash. During March, land will be purchased for cash at a cost of $2,000.

   i.   During January, the company will declare and pay $30,000 in cash dividends.

   j.   Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total of $40,000. The interest rate on these loans is 1% per month and for simplicity we will assume the interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

  1.   Schedule of expected cash collections:

 

 

January

February

March

Quarter

 

Cash sales.................................

mce_markernbsp; 181,500

 

 

 

 

Credit sales................................

    135,000

 

 

 

 

Total cash collections.............

mce_markernbsp; 316,500

 

 

 

2.   a.     Inventory purchases budget:

 

 

January

 

February

 

March

 

Quarter

 

Budgeted cost of goods sold..

$231,000

*

$245,000

 

 

 

 

 

Add desired ending inventory

  171,500

 

 

 

 

 

 

Total needs...............................

402,500

 

 

 

 

 

 

 

Less beginning inventory........

  161,700

 

 

 

 

 

 

 

Required purchases.................

$240,800

 

 

 

 

 

 

                * $330,000 sales × 70% cost ratio = $231,000

                †$245,000 × 70% = $171,500

  b.   Schedule of expected cash disbursements for merchandise purchases:

 

 

January

 

February

 

March

 

Quarter

 

December purchases...............

$178,000

 

 

 

 

 

$178,000

 

January purchases...................

60,200

 

$180,600

 

 

 

240,800

 

February purchases.................

 

 

 

 

 

 

 

 

March purchases.....................

              

 

 

 

 

 

 

 

Total cash disbursements for purchases..............................

$238,200

 

 

 

 

 

 

 3.   Schedule of expected cash disbursements for selling and administrative expenses:

 

 

January

 

February

 

March

 

Quarter

 

Salaries and wages..................

$18,000

 

 

 

 

 

 

 

Advertising................................

15,000

 

 

 

 

 

 

 

Shipping.....................................

13,200

 

 

 

 

 

 

 

Other expenses.........................

  26,400

 

 

 

 

 

 

 

Total cash disbursements for selling and administrative expenses................................

$72,600

 

 

 

 

 

 

  4.   Cash budget:

 

 

January

 

February

 

March

 

Quarter

 

Cash balance, beginning........

mce_markernbsp; 31,000

 

 

 

 

 

 

 

Add cash collections...............

  316,500

 

 

 

 

 

 

 

Total cash available................

  347,500

 

 

 

 

 

 

 

Less cash disbursements:

 

 

 

 

 

 

 

 

Purchases of inventory.......

238,200

 

 

 

 

 

 

 

Selling and administrative expenses............................

72,600

 

 

 

 

 

 

 

Purchases of land................

0

 

 

 

 

 

 

 

Cash dividends.....................

    30,000

 

 

 

 

 

 

 

Total cash disbursements...

  340,800

 

 

 

 

 

 

 

Excess (deficiency) of cash...

6,700

 

 

 

 

 

 

 

Financing:

 

 

 

 

 

 

 

 

Etc.

 

 

 

 

 

 

 

  5.   Prepare an absorption costing income statement for the quarter ending March 31 as shown in Schedule 9 in the chapter.

  6.   Prepare a balance sheet as of March 31.




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