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.
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.
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: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: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
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