As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Debits Credits Cash $ 44,000 Accounts receivable 203,200 Inventory 58,350 Buildings and equipment (net) 354,000 Accounts payable $ 86,325 Common stock 500,000 Retained earnings 73,225 $ 659,550 $ 659,550 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 254,000 January $ 389,000 February $ 586,000 March $ 300,000 April $ 197,000 Sales are 20% for cash and 80% 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. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) Monthly expenses are budgeted as follows: salaries and wages, $19,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,740 for the quarter. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month. During February, the company will purchase a new copy machine for $1,400 cash. During March, other equipment will be purchased for cash at a cost of $72,000. During January, the company will declare and pay $45,000 in cash dividends. 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. The interest rate on these loans is 1% per month and for simplicity we will assume that 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. Using the data above, complete the following statements and schedules for the first quarter: 4. Prepare an absorption costing income statement for the quarter ending March 31. 5. Prepare a balance sheet as of March 31. Answer choices dropdown menu options for Income Statement First Column [rows 1, 9-15, 17]: (Accounts payable, Accounts receivable, Advertising, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Depreciation, Interest expense, Note payable, Other expenses, Prepaid insurance, Rent, Retained earnings, Salaries and wages, Sales, Shipping) [Rows 3-6]: (Beginning inventory, Ending inventory, Goods available for sale, Purchases) Row 7: (Gross Loss, Gross margin) Row 16: (Net operating income, Net operating loss) Row 18: (Net income, Net loss) Answer Choices dropdown menu options for Balance Sheet First Column (all rows) (Accounts payable, Accounts receivable, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Interest expense, Inventory, Note payable, Prepaid insurance, Retained earnings)
As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
| Debits | Credits | |
|---|---|---|
| Cash | $ 44,000 | |
| 203,200 | ||
| Inventory | 58,350 | |
| Buildings and equipment (net) | 354,000 | |
| Accounts payable | $ 86,325 | |
| Common stock | 500,000 | |
| 73,225 | ||
| $ 659,550 | $ 659,550 |
Actual sales for December and budgeted sales for the next four months are as follows:
| December(actual) | $ 254,000 |
|---|---|
| January | $ 389,000 |
| February | $ 586,000 |
| March | $ 300,000 |
| April | $ 197,000 |
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Sales are 20% for cash and 80% 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.
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The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
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Monthly expenses are budgeted as follows: salaries and wages, $19,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales.
Depreciation , including depreciation on new assets acquired during the quarter, will be $42,740 for the quarter. -
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
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During February, the company will purchase a new copy machine for $1,400 cash. During March, other equipment will be purchased for cash at a cost of $72,000.
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During January, the company will declare and pay $45,000 in cash dividends.
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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. The interest rate on these loans is 1% per month and for simplicity we will assume that 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.
Using the data above, complete the following statements and schedules for the first quarter:
4. Prepare an absorption costing income statement for the quarter ending March 31.
5. Prepare a
Answer choices dropdown menu options for Income Statement First Column
[rows 1, 9-15, 17]: (Accounts payable, Accounts receivable, Advertising, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Depreciation, Interest expense, Note payable, Other expenses, Prepaid insurance, Rent, Retained earnings, Salaries and wages, Sales, Shipping)
[Rows 3-6]: (Beginning inventory, Ending inventory, Goods available for sale, Purchases)
Row 7: (Gross Loss, Gross margin)
Row 16: (Net operating income, Net operating loss)
Row 18: (Net income, Net loss)
Answer Choices dropdown menu options for Balance Sheet First Column (all rows)
(Accounts payable, Accounts receivable, Buildings and equipment net, Cash, Common stock, Cost of goods sold, Interest expense, Inventory, Note payable, Prepaid insurance, Retained earnings)
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