OBJECTIVE 3 Problem 8.37 Cash Budget, Pro Forma Balance Sheet Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data. а. Sales July (actual) August (actual) September (estimated) October (estimated) November (estimated) December (estimated) $100,000 120,000 90,000 100,000 135,000 150,000 b. Each month, 20 percent of sales are for cash, and 80 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale. Each month, the ending inventory exactly equals 40 percent of the cost of next month's sales. The markup on goods is 33.33 percent of cost. d. Inventory purchases are paid for in the month following purchase. Recurring monthly expenses are as follows: с. е. Salaries and wages Depreciation on plant and equipment Utilities $10,000 4,000 1,000 1,700 Other (сontinued)
OBJECTIVE 3 Problem 8.37 Cash Budget, Pro Forma Balance Sheet Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data. а. Sales July (actual) August (actual) September (estimated) October (estimated) November (estimated) December (estimated) $100,000 120,000 90,000 100,000 135,000 150,000 b. Each month, 20 percent of sales are for cash, and 80 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale. Each month, the ending inventory exactly equals 40 percent of the cost of next month's sales. The markup on goods is 33.33 percent of cost. d. Inventory purchases are paid for in the month following purchase. Recurring monthly expenses are as follows: с. е. Salaries and wages Depreciation on plant and equipment Utilities $10,000 4,000 1,000 1,700 Other (сontinued)
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:OBJECTIVE 3
Problem 8.37 Cash Budget, Pro Forma Balance Sheet
Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash
budget for the fourth quarter of the year, he has assembled the following data.
a. Sales
July (actual)
August (actual)
September (estimated)
October (estimated)
November (estimated)
December (estimated)
$100,000
120,000
90,000
100,000
135,000
150,000
b. Each month, 20 percent of sales are for cash, and
pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month,
and 30 percent in the second month following the sale.
Each month, the ending inventory exactly equals 40 percent of the cost of next month's
sales. The markup on goods is 33.33 percent of cost.
d. Inventory purchases are paid for in the month following purchase.
Recurring monthly expenses are as follows:
percent are on credit. The collection
с.
е.
Salaries and wages
$10,000
4,000
1,000
Depreciation on plant and equipment
Utilities
Other
1,700
(сontinued)
Transcribed Image Text:f. Property taxes of $15,000 are due and payable on September 15.
g. Advertising fees of $6,000 must be paid on October 20.
h. A lease on a new storage facility is scheduled to begin on November 2. Monthly payments
are $5,000.
i. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it
will borrow to meet its short-term needs. All borrowing is done at the beginning of the
month. All payments on principal and interest are made at the end of the month. The an-
nual interest rate is 9 percent. The company must borrow in multiples of $1,000.
j. A partially completed balance sheet as of August 31 is given below. (Accounts payable is
for inventory purchases only.)
Liabilities &
Assets
Owners' Equity
Cash
2$
?
Accounts receivable
Inventory
Plant and equipment
Accounts payable
?
431,750
$ ?
220,000
268,750
2$
Common stock
Retained earnings
Totals
2$
Required:
1. Complete the balance sheet given in part (j).
2. Bernard wants to see how the company is doing prior to starting the month of December.
Prepare a cash budget for the months of September, October, and November and for the
three-month period in total (the period begins on September 1). Provide a supporting sched-
ule of cash collections.
3. Prepare a pro forma balance sheet as of November 30.
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