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:   1. Schedule of expected cash collections: 2-a. Merchandise purchases budget:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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

 

  1. 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.

  2. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

  3. 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.

  4. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

  5. 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.

  6. 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.

  7. During January, the company will declare and pay $45,000 in cash dividends.

  8. 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:

 

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

 

 

Cash sales
Credit sales
Total collections
Schedule of Expected Cash Collections
January
February
S 77,800
203,200
281,000
$
March
Quarter
Transcribed Image Text:Cash sales Credit sales Total collections Schedule of Expected Cash Collections January February S 77,800 203,200 281,000 $ March Quarter
Budgeted cost of goods sold
Add desired ending inventory
Total needs
Less beginning inventory
Merchandise Purchases Budget
February
January
$233,400* $ 351,600
87,900+
321,300
58,350
Required purchases
*$389,000 sales × 60% cost ratio = $233,400.
+$351,600 × 25% = $87,900.
March
Quarter
Transcribed Image Text:Budgeted cost of goods sold Add desired ending inventory Total needs Less beginning inventory Merchandise Purchases Budget February January $233,400* $ 351,600 87,900+ 321,300 58,350 Required purchases *$389,000 sales × 60% cost ratio = $233,400. +$351,600 × 25% = $87,900. March Quarter
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