Recent and forecasted sales: October $280,000 December $161,000 February $413,000 April $280,000 November 168,000 January 378,000 March 273,000 1. Prepare a master budget including a budgeted income statement, balance sheet, cash budget, and supporting schedules for the months January-March 20X2. 2. Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Recent and forecasted
sales:
October
$161,000
February $413,000
April $280,000
$280,000
December
November
168,000
January
378,000
March
273,000
1. Prepare a master budget including a budgeted income statement, balance sheet, cash budget,
and supporting schedules for the months January-March 20X2.
2. Explain why there is a need for a bank loan and what operating sources provide the cash for the
repayment of the bank loan.
CS Scanned with CamScanner
Transcribed Image Text:Recent and forecasted sales: October $161,000 February $413,000 April $280,000 $280,000 December November 168,000 January 378,000 March 273,000 1. Prepare a master budget including a budgeted income statement, balance sheet, cash budget, and supporting schedules for the months January-March 20X2. 2. Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan. CS Scanned with CamScanner
Prepare Master Budget
Flying Fish Kite Company, a small Woy Woy, Australia, firm that sells kites on the Weh, wants a master
budget for the 3 months beginning January 1, 20X2. It desires the ending minimum cash balance of
$15,000 each month. Sales are forecasted at an average wholesale selling price of $14 per kite,
Merchandise cost average $5 per kite. All sales are on credit, payable within 30 days, but experience has
shown that 40% of current sales are collected in the current month, 10% in the next month, and 50% in
the month thereafter. Bad debts are negligible.
In January, Flying Fish Kite is beginning just-in-time (JIT) deliveries from suppliers, which means
that purchases will equal expected sales. On January 1, purchases will cease until inventory decreases to
$22,000, after which time purchases will equal sales. Purchases during any given month are paid in full
during the following month.
Monthly operating expenses are as follows:
$80,000
Wages and salaries
Insurance expired
450
Depreciation
900
Miscellaneous
4,000
Rent
$500/month + 5% of quarterly sales over $50,000
Cash dividends of $2,400 are to be paid quarterly, beginning January 15, and are declared on the
fifteenth of the previous month. All operating expenses are paid as incurred, except insurance,
depreciation, and rent. Rent of $500 is paid at the beginning of each month, and the additional 5% of
sales is settled quarterly on the tenth of the month following the end of the quarter. The next rent
settlement date is January 10.
The company plans to buy some new fixtures for $4,000 cash in March.
Money can be borrowed and repaid in multiples of $2,000. Management wants to minimize
borrowing and repay rapidly. Simple interest of 9% per annum is computed monthly but paid when the
principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the
months in question. Compute interest to the nearest dollar.
Assests as of
Liabilities and Owners' Equities as
of December 31, 20X1
December 31, 20X1
Cash
$30,000 Accounts payable (merchandise)
$151,500
Accounts receivable
180,600
Inventory*
Unexpired insurance
Fixed assets, net
153,000 Dividends payable
2,400
5,400 Rent payable
62,000 Owners' equity
$431,000
27,950
249,150
$431,000
*November 30 inventory balance $59,000
CS Scanned with CamScanner
Transcribed Image Text:Prepare Master Budget Flying Fish Kite Company, a small Woy Woy, Australia, firm that sells kites on the Weh, wants a master budget for the 3 months beginning January 1, 20X2. It desires the ending minimum cash balance of $15,000 each month. Sales are forecasted at an average wholesale selling price of $14 per kite, Merchandise cost average $5 per kite. All sales are on credit, payable within 30 days, but experience has shown that 40% of current sales are collected in the current month, 10% in the next month, and 50% in the month thereafter. Bad debts are negligible. In January, Flying Fish Kite is beginning just-in-time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 1, purchases will cease until inventory decreases to $22,000, after which time purchases will equal sales. Purchases during any given month are paid in full during the following month. Monthly operating expenses are as follows: $80,000 Wages and salaries Insurance expired 450 Depreciation 900 Miscellaneous 4,000 Rent $500/month + 5% of quarterly sales over $50,000 Cash dividends of $2,400 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $500 is paid at the beginning of each month, and the additional 5% of sales is settled quarterly on the tenth of the month following the end of the quarter. The next rent settlement date is January 10. The company plans to buy some new fixtures for $4,000 cash in March. Money can be borrowed and repaid in multiples of $2,000. Management wants to minimize borrowing and repay rapidly. Simple interest of 9% per annum is computed monthly but paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Compute interest to the nearest dollar. Assests as of Liabilities and Owners' Equities as of December 31, 20X1 December 31, 20X1 Cash $30,000 Accounts payable (merchandise) $151,500 Accounts receivable 180,600 Inventory* Unexpired insurance Fixed assets, net 153,000 Dividends payable 2,400 5,400 Rent payable 62,000 Owners' equity $431,000 27,950 249,150 $431,000 *November 30 inventory balance $59,000 CS Scanned with CamScanner
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