Adams Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, year 1. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks.   Required October sales are estimated to be $200,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 percent per month. Prepare a sales budget. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,000. Assume that all purchases are made on account. Prepare an inventory purchases budget. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases. Budgeted selling and administrative expenses per month follow.     Salary expense (fixed) $ 18,000   Sales commissions   5 % of Sales Supplies expense   2 % of Sales Utilities (fixed) $ 1,400   Depreciation on store fixtures (fixed)* $ 4,000   Rent (fixed) $ 4,800   Miscellaneous (fixed) $ 1,200     *The capital expenditures budget indicates that Adams will spend $164,000 on October 1 for store fixtures, which are expected to have a $20,000 salvage value and a three-year (36-month) useful life. Use this information to prepare a selling and administrative expenses budget. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses. Adams borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $12,000 cash cushion. Prepare a cash budget. Prepare a pro forma income statement for the quarter. Prepare a pro forma balance sheet at the end of the quarter. Prepare a pro forma statement of cash flows for the quarter

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Adams Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, year 1. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks.

 

Required

  1. October sales are estimated to be $200,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 percent per month. Prepare a sales budget.

  2. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

  3. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.

  4. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

  5. Budgeted selling and administrative expenses per month follow.
     

 
Salary expense (fixed) $ 18,000  
Sales commissions   5 % of Sales
Supplies expense   2 % of Sales
Utilities (fixed) $ 1,400  
Depreciation on store fixtures (fixed)* $ 4,000  
Rent (fixed) $ 4,800  
Miscellaneous (fixed) $ 1,200  
 

*The capital expenditures budget indicates that Adams will spend $164,000 on October 1 for store fixtures, which are expected to have a $20,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

  1. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

  2. Adams borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $12,000 cash cushion. Prepare a cash budget.

  3. Prepare a pro forma income statement for the quarter.

  4. Prepare a pro forma balance sheet at the end of the quarter.

  5. Prepare a pro forma statement of cash flows for the quarter

 

 

 

---
### Financial Accounting: Cash Flow and Budget Preparation

#### Task Overview
Please follow the instructions below to complete various financial tasks related to cash budget preparation and financial statements.

1. **Utilities and Sales Commissions Payment**:
   - Utility and sales commission payments are made in the month after they are incurred. All other expenses are paid in the month they are incurred.
   - **Task**: Prepare a cash payments budget for selling and administrative expenses.

2. **Loan Management**:
   - Adams borrows funds in increments of $1,000, and repayments are made on the last day of each month. The company also pays its vendors on the last day of the month and pays interest of 1 percent per month in cash on the amount available.
   - The company aims to maintain a $12,000 cash cushion.
   - **Task**: Prepare a cash budget.

3. **Financial Statements Preparation**:
   - **Task**: Prepare a pro forma income statement for the quarter.
   - **Task**: Prepare a pro forma balance sheet at the end of the quarter.
   - **Task**: Prepare a pro forma statement of cash flows for the quarter.

#### Data Input Section

Please provide your answers in the tabs below:

- **Required A**
- **Required B**
- **Required C**
- **Required D**
- **Required E**
- **Required F**
- **Required G**
- **Required H**
- **Required I**
- **Required J**

#### Schedule of Cash Receipts

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Below is a schedule of cash receipts:

| **Schedule of Cash Receipts** | **October** | **November** | **December** |
|-------------------------------|-------------|--------------|--------------|
| Current cash sales            | $80,000     | $100,000     | $125,500     |
| Plus collections from A/R     |             | $150,000     | $187,500     |
| **Total collections**         | $80,000     | $250,000     | $313,000     |

---
To proceed, click on the respective tabs and input the required information for each category to complete your cash budget and financial statements accurately.

**References**:
Ensure to review relevant sections within your eBook for guidance, and consult additional resources if necessary by clicking the "References"
Transcribed Image Text:--- ### Financial Accounting: Cash Flow and Budget Preparation #### Task Overview Please follow the instructions below to complete various financial tasks related to cash budget preparation and financial statements. 1. **Utilities and Sales Commissions Payment**: - Utility and sales commission payments are made in the month after they are incurred. All other expenses are paid in the month they are incurred. - **Task**: Prepare a cash payments budget for selling and administrative expenses. 2. **Loan Management**: - Adams borrows funds in increments of $1,000, and repayments are made on the last day of each month. The company also pays its vendors on the last day of the month and pays interest of 1 percent per month in cash on the amount available. - The company aims to maintain a $12,000 cash cushion. - **Task**: Prepare a cash budget. 3. **Financial Statements Preparation**: - **Task**: Prepare a pro forma income statement for the quarter. - **Task**: Prepare a pro forma balance sheet at the end of the quarter. - **Task**: Prepare a pro forma statement of cash flows for the quarter. #### Data Input Section Please provide your answers in the tabs below: - **Required A** - **Required B** - **Required C** - **Required D** - **Required E** - **Required F** - **Required G** - **Required H** - **Required I** - **Required J** #### Schedule of Cash Receipts The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Below is a schedule of cash receipts: | **Schedule of Cash Receipts** | **October** | **November** | **December** | |-------------------------------|-------------|--------------|--------------| | Current cash sales | $80,000 | $100,000 | $125,500 | | Plus collections from A/R | | $150,000 | $187,500 | | **Total collections** | $80,000 | $250,000 | $313,000 | --- To proceed, click on the respective tabs and input the required information for each category to complete your cash budget and financial statements accurately. **References**: Ensure to review relevant sections within your eBook for guidance, and consult additional resources if necessary by clicking the "References"
### Financial Budget Preparation Exercise

#### Objective:
Use the provided information to prepare various financial budgets and statements for Adams Company.

---

**Capital Expenditures Budget:**
- Adams will spend $164,000 on October 1 for store fixtures.
- Expected to have a $20,000 salvage value.
- Useful life of three years (36 months).

**Tasks:**
1. **Selling and Administrative Expenses Budget:** Prepare a budget for selling and administrative expenses.
2. **Cash Payments Budget:**
   - Utilities and sales commissions are paid the month after they are incurred.
   - All other expenses are paid in the month they are incurred.
3. **Cash Budget:**
   - Adams borrows funds in increments of $1,000 and repays them on the last day of the month.
   - The company pays its vendors on the last day of the month.
   - Interest of 1 percent per month is paid in cash on the last day of the month.
   - Maintain a $12,000 cash cushion.
4. **Pro Forma Income Statement:** Prepare for the quarter.
5. **Pro Forma Balance Sheet:** Prepare at the end of the quarter.
6. **Pro Forma Statement of Cash Flows:** Prepare for the quarter.

---

**Sales Budget:**

**Sales Estimates for October:**
- **Total Sales:** $200,000 
  - **Cash Sales (40%):** $80,000
  - **Sales on Account (60%):** $120,000

**Sales Increase:**
- Expected to increase by 25% per month.

**Detailed Sales Budget:**
| Month     | Cash Sales | Sales on Account | Total Budgeted Sales |
|-----------|------------|------------------|----------------------|
| October   | $80,000    | $120,000         | $200,000             |
| November  | $100,000   | $150,000         | $250,000             |
| December  | $125,000   | $187,500         | $312,500             |

--- 

#### Instruction:
Complete the necessary tabs for the various budgets and financial statements by entering your answers below. 

Navigate to each required section (`Required A` through `Required J`) for detailed budgeting tasks and templates.

---

**Graph/Diagram Explanation:**

There is a table that outlines the sales budget for a quarter, based on expected sales for October and anticipated monthly increases. The
Transcribed Image Text:### Financial Budget Preparation Exercise #### Objective: Use the provided information to prepare various financial budgets and statements for Adams Company. --- **Capital Expenditures Budget:** - Adams will spend $164,000 on October 1 for store fixtures. - Expected to have a $20,000 salvage value. - Useful life of three years (36 months). **Tasks:** 1. **Selling and Administrative Expenses Budget:** Prepare a budget for selling and administrative expenses. 2. **Cash Payments Budget:** - Utilities and sales commissions are paid the month after they are incurred. - All other expenses are paid in the month they are incurred. 3. **Cash Budget:** - Adams borrows funds in increments of $1,000 and repays them on the last day of the month. - The company pays its vendors on the last day of the month. - Interest of 1 percent per month is paid in cash on the last day of the month. - Maintain a $12,000 cash cushion. 4. **Pro Forma Income Statement:** Prepare for the quarter. 5. **Pro Forma Balance Sheet:** Prepare at the end of the quarter. 6. **Pro Forma Statement of Cash Flows:** Prepare for the quarter. --- **Sales Budget:** **Sales Estimates for October:** - **Total Sales:** $200,000 - **Cash Sales (40%):** $80,000 - **Sales on Account (60%):** $120,000 **Sales Increase:** - Expected to increase by 25% per month. **Detailed Sales Budget:** | Month | Cash Sales | Sales on Account | Total Budgeted Sales | |-----------|------------|------------------|----------------------| | October | $80,000 | $120,000 | $200,000 | | November | $100,000 | $150,000 | $250,000 | | December | $125,000 | $187,500 | $312,500 | --- #### Instruction: Complete the necessary tabs for the various budgets and financial statements by entering your answers below. Navigate to each required section (`Required A` through `Required J`) for detailed budgeting tasks and templates. --- **Graph/Diagram Explanation:** There is a table that outlines the sales budget for a quarter, based on expected sales for October and anticipated monthly increases. The
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