Magnuson is considering buying an eight-harness loom so that she can weavewithmore intricate patterns in linen. The new loom costs $1,000 and would be depreciated$20 per month. Her bank has agreed to lend her $1,000 at 18% interest per year,$200 payment of principal, plus accrued interest payable each December 31. Magnusonbelieves she can weave 15 linen place mat sets in time for the Christmas rush if she doesnot weave any cotton mats. She predicts that each linen set will sell for $50. Linen costs$18 per set. Magnuson's supplier will sell her linen on credit, payable December 31.Magnuson plans to keep her old loom whether or not she buys the new loom.The balance sheet for her weaving business at August 31, 2016, is as follows:AssetsCurrent Assets:CashInventory of cottonTotal Current AssetsProperty, Plant, and Equipment:LoomLess: Accumulated DepreciationTotal PP&ETotal AssetsANNE MAGNUSON, WEAVERBalance SheetAugust 31, 2016$25175200500(240)260$ 460Current Liabilities:Account PayableLiabilitiesStockholders' EquityStockholders' EquityTotal Liabilities and Stockholders' Equity$74your reason.3. What nonfinancial factors might Magnuson consider in her decision?386$ 460Requirements1. Prepare a cash budget for the four months ending December 31, 2016, for twoalternatives: weaving the place mats in cotton using the existing loom and weavingthe place mats in linen using the new loom. For each alternative, prepare abudgeted income statement for the four months ending December 31, 2016, anda budgeted balance sheet at December 31, 2016.2. On the basis of financial considerations only, what should Magnuson do? Give aEach autumn, as a hobby, Anne Magnuson weaves cotton place mats to sell throughlocal craft shop. The mats sell for $20 per set of four. The shop charges a 10%commission and remits the net proceeds to Magnuson at the end of December.Magnuson has woven and sold 25 sets each year for the past two years. She has enoughcotton in inventory to make another 25 sets. She paid $7 per set for the cotton.Magnuson uses a four-harness loom that she purchased for cash exactly two years ago.It is depreciated at the rate of $10 per month. The Accounts Payable balance relates tothe cotton inventory and is payable by September 30.

Master Budget: It is the budget that shows the budget of all the - a) interconnected sales b)…

Prepare a cash budget for the four months ending December 31, 2016, for two alternatives: weaving the place mats in cotton using the existing loom and weaving the place mats in linen using the new loom. For each alternative, prepare a budgeted income statement for the four months ending December 31, 2016, and a budgeted balance sheet at December 31, 2016. On the basis of financial considerations only, what should Magnuson do? Give Four reason. What nonfinancial factors might Magnuson consider in her decision?

Prepare a cash budget for the four months ending December 31, 2016, for two alternatives: weaving the place mats in cotton using the existing loom and weaving the place mats in linen using the new loom. For each alternative, prepare a budgeted income statement for the four months ending December 31, 2016, and a budgeted balance sheet at December 31, 2016. On the basis of financial considerations only, what should Magnuson do? Give Four reason. What nonfinancial factors might Magnuson consider in her decision?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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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

Magnuson is considering buying an eight-harness loom so that she can weave
with
more intricate patterns in linen. The new loom costs $1,000 and would be depreciated
$20 per month. Her bank has agreed to lend her $1,000 at 18% interest per year,
$200 payment of principal, plus accrued interest payable each December 31. Magnuson
believes she can weave 15 linen place mat sets in time for the Christmas rush if she does
not weave any cotton mats. She predicts that each linen set will sell for $50. Linen costs
$18 per set. Magnuson's supplier will sell her linen on credit, payable December 31.
Magnuson plans to keep her old loom whether or not she buys the new loom.
The balance sheet for her weaving business at August 31, 2016, is as follows:
Assets
Current Assets:
Cash
Inventory of cotton
Total Current Assets
Property, Plant, and Equipment:
Loom
Less: Accumulated Depreciation
Total PP&E
Total Assets
ANNE MAGNUSON, WEAVER
Balance Sheet
August 31, 2016
$25
175
200
500
(240)
260
$ 460
Current Liabilities:
Account Payable
Liabilities
Stockholders' Equity
Stockholders' Equity
Total Liabilities and Stockholders' Equity
$74
your reason.
3. What nonfinancial factors might Magnuson consider in her decision?
386
$ 460
Requirements
1. Prepare a cash budget for the four months ending December 31, 2016, for two
alternatives: weaving the place mats in cotton using the existing loom and weaving
the place mats in linen using the new loom. For each alternative, prepare a
budgeted income statement for the four months ending December 31, 2016, and
a budgeted balance sheet at December 31, 2016.
2. On the basis of financial considerations only, what should Magnuson do? Give

a
Each autumn, as a hobby, Anne Magnuson weaves cotton place mats to sell through
local craft shop. The mats sell for $20 per set of four. The shop charges a 10%
commission and remits the net proceeds to Magnuson at the end of December.
Magnuson has woven and sold 25 sets each year for the past two years. She has enough
cotton in inventory to make another 25 sets. She paid $7 per set for the cotton.
Magnuson uses a four-harness loom that she purchased for cash exactly two years ago.
It is depreciated at the rate of $10 per month. The Accounts Payable balance relates to
the cotton inventory and is payable by September 30.

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