Mecca 4 Company, a retailer of specialty wall-papers, prepares a monthly master budget. Data for the September master budget are given below: a. The August 31st balance sheet (Actual): cash accounts receivable inventory building and equipment (net) $25,000 133,000 32,813 203,500 e. accounts payable August-Actual September-Projected October-Projected November-Projected h. capital stock retained earnings b. Actual sales for August and budgeted sales for September, October, and November are given below: $190,000 375,000 $62,016 405,000 310,000 295,372 36,925 c. Sales are 30% for cash and 70% on credit. All credit sales are collected in the month following the sale. There are no bad debts. d. The gross margin percentage is 65% of sales. The desired ending inventory is equal to 25% of the following month's COGS. One fourth of the purchases are paid for in the month of the purchase and the remaining 75% are purchased on account and paid in full the following month. The monthly operating expenses are $90,000 including the monthly depreciation of $8,000 In September, Mecca Company will purchase new office equipment for $40,000 cash. The expected useful life of the new equipment is 5 years, with no salvage value. It will be depreciated using the straight-line method. Mecca will start depreciating the equipment in September (full month). g. Dividends of $23,500 and $30,000 will be declared and paid in September and October, respectively. The company must maintain a minimum cash balance of $32,000 starting September. A line of credit is used to maintain this balance. Borrowing will be made in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual interest rate is 12%, paid when the loan is repaid ( ignore the accrual of interest). Required: 1. Prepare a balance sheet, income statement, and cash budget for the month of September.
Mecca 4 Company, a retailer of specialty wall-papers, prepares a monthly master budget. Data for the September master budget are given below: a. The August 31st balance sheet (Actual): cash accounts receivable inventory building and equipment (net) $25,000 133,000 32,813 203,500 e. accounts payable August-Actual September-Projected October-Projected November-Projected h. capital stock retained earnings b. Actual sales for August and budgeted sales for September, October, and November are given below: $190,000 375,000 $62,016 405,000 310,000 295,372 36,925 c. Sales are 30% for cash and 70% on credit. All credit sales are collected in the month following the sale. There are no bad debts. d. The gross margin percentage is 65% of sales. The desired ending inventory is equal to 25% of the following month's COGS. One fourth of the purchases are paid for in the month of the purchase and the remaining 75% are purchased on account and paid in full the following month. The monthly operating expenses are $90,000 including the monthly depreciation of $8,000 In September, Mecca Company will purchase new office equipment for $40,000 cash. The expected useful life of the new equipment is 5 years, with no salvage value. It will be depreciated using the straight-line method. Mecca will start depreciating the equipment in September (full month). g. Dividends of $23,500 and $30,000 will be declared and paid in September and October, respectively. The company must maintain a minimum cash balance of $32,000 starting September. A line of credit is used to maintain this balance. Borrowing will be made in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual interest rate is 12%, paid when the loan is repaid ( ignore the accrual of interest). Required: 1. Prepare a balance sheet, income statement, and cash budget for the month of September.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Mecca 4 Company, a retailer of specialty wall-papers, prepares a monthly master
budget. Data for the September master budget are given below:
a. The August 31st balance sheet (Actual):
cash
accounts receivable
inventory
building and equipment
(net)
$25,000
133,000
32,813
203,500
e.
accounts payable
August-Actual
September-Projected
October-Projected
November-Projected
capital stock
retained earnings
b. Actual sales for August and budgeted sales for September, October, and November
are given below:
$62,016
$190,000
375,000
405,000
310,000
295,372
36,925
C. Sales are 30% for cash and 70% on credit. All credit sales are collected in the month
following the sale. There are no bad debts.
d. The gross margin percentage is 65% of sales. The desired ending inventory is equal
to 25% of the following month's COGS. One fourth of the purchases are paid for in
the month of the purchase and the remaining 75% are purchased on account and
paid in full the following month.
The monthly operating expenses are $90,000 including the monthly depreciation of
$8,000
f.
In September, Mecca Company will purchase new office equipment for $40,000
cash. The expected useful life of the new equipment is 5 years, with no salvage
value. It will be depreciated using the straight-line method. Mecca will start
depreciating the equipment in September (full month).
g. Dividends of $23,500 and $30,000 will be declared and paid in September and
October, respectively.
h. The company must maintain a minimum cash balance of $32,000 starting
September. A line of credit is used to maintain this balance. Borrowing will be made
in increments of $1,000. All borrowing is done at the beginning of the month and
repayments are made at the end of the month. The annual interest rate is 12%, paid
when the loan is repaid ( ignore the accrual of interest).
Required:
1. Prepare a balance sheet, income statement, and cash budget for the month of September.
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