Chapter 10, Problem 49P

1.

To determine

Compute the total of budgeted cash collections for Company, G for the month of December.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

A cash budget illustrates the effects of all budgeted activities on cash. The cash budget draws data from nearly every part of the master budget. Preparing a cash budget requires that all budgets be carefully reviewed to recognize all revenues, expenses, and other cash-influencing operations. It includes three major sections which are as follows:

• Net cash flows from operating activities;
• Net cash flows from investing activities; and
• Net cash flows from financing activities

The cash budget will provide data to the user related to the company's cash management capability.

The budget for cash receipts provides details of anticipated cash collections from operations for a coming period. Cash receipts from investment and fundraising activities are shown on the cash budget elsewhere. It has three different sources of cash receipts from operations:

• Cash sales,
• Bank credit card sales, and
• Collection of credit sales (i.e., sales made by the company on “open account”).

The merchandise purchases budget of a firm shows the amount and cost of merchandise that it needs to buy during the budget period. The basic format of a budget for purchasing merchandise is the same as the budget for production.

Compute the total of budgeted cash collections for December:

Particulars	Amount
From November’s sales = net A/R, November 30th (given)	$76,000
From December’s sales = $220,000 × 50% × 99%	123,750
Budgeted cash collections for December	$199,750

Hence, the total of budgeted cash collections for Company, G for the month of December is $199,750.

2.

To determine

Calculate the book value of the accounts receivable of Company, G at the end of December.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

Accounts receivable (AR) is the balance of money owing to a company for goods or services delivered or used by customers but not yet paid. They are listed as existing assets on the balance sheet. The book value means the total amount that would be worth a company if it liquidated its assets and paid all its liabilities back.

Calculate the book value of the accounts receivable of Company, G at the end of December i.e., 31^st Dec:

Particulars	Amount
Budgeted sales in December (given)	$250,000
Allowance for doubtful accounts $250,000 × 2%	5,000
Net A/R from sales in December	$245,000
Collections of December sales in December $250,000 × 50%	$125,000
Net Accounts Receivable on December 31st	$120,000

Hence, the book value of the accounts receivable of Company, G on 31^st Dec is $120,000.

3.

To determine

Calculate the amount of income (loss) before income taxes for December.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

A cash budget illustrates the effects of all budgeted activities on cash. The cash budget draws data from nearly every part of the master budget. Preparing a cash budget requires that all budgets be carefully reviewed to recognize all revenues, expenses, and other cash-influencing operations. It includes three major sections which are as follows:

• Net cash flows from operating activities;
• Net cash flows from investing activities; and
• Net cash flows from financing activities

The cash budget will provide data to the user related to the company's cash management capability.

The budget for cash receipts provides details of anticipated cash collections from operations for a coming period. Cash receipts from investment and fundraising activities are shown on the cash budget elsewhere. It has three different sources of cash receipts from operations:

• Cash sales,
• Bank credit card sales, and
• Collection of credit sales (i.e., sales made by the company on “open account”).

Calculate the budgeted pre-tax operating income for December:

Particulars		Amount
Total sales (given)		$250,000
Multiply: Gross margin ratio		×30 %
Gross margin		$75,000
Operating expenses:
Monthly cash operating expenses (given)	$25,000
Bad-debts expense:                      $250,000 × 2%	5,000
Depreciation expense :                $216,000 ÷ 12	18,000	48,000
Pre-tax operating income		$27,000

Hence, budgeted pre-tax operating income for December is $27,000.

4.

To determine

Calculate the projected balance in inventory on Dec 31, 2016.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

Inventory is the concept used for the goods available for sale and the raw materials used for the sale of goods.

Calculate the projected balance in inventory on Dec 31, 2016:

$\begin{array}{c}\text{Inventory},{\text{December 31}}^{\text{st}}= \left(\$\text{225},000\times 0.\text{7}0\right)\times \text{8}0\%\\ = \$\text{126},000\end{array}$

Hence, the projected balance in inventory on Dec 31, 2016 is $126,000.

5.

To determine

Compute the amount of budgeted purchases for the month of December.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

A cash budget illustrates the effects of all budgeted activities on cash. The cash budget draws data from nearly every part of the master budget. Preparing a cash budget requires that all budgets be carefully reviewed to recognize all revenues, expenses, and other cash-influencing operations. It includes three major sections which are as follows:

• Net cash flows from operating activities;
• Net cash flows from investing activities; and
• Net cash flows from financing activities

The cash budget will provide data to the user related to the company's cash management capability.

Calculate the amount of budgeted purchases for the month of December

Particulars	Amount
Inventory, December 1st (given)	$132,000
Add: Purchases during December	169,000
Cost of goods available for sale ($120,000 + $165,000)	$301,000
Less: Cost of goods sold = $250,000 × 70%	175,000
Inventory, December 31st	$126,000

Hence, the budgeted purchases for the month of December are $126,000.

6.

To determine

Compute projected balance in accounts payable on December 31, 2016.

Explanation of Solution

A budget is an estimate for the takeover and use of financial and other resources, for example, a year, a month or a quarter, over a specified period of time. Budgeting is a method of having one or more budgets prepared.

Accounts payable (AP) is an account within the general ledger which reflects the responsibility of a company to pay its creditors or suppliers a short-term debt.\

Calculate the projected balance in accounts payable on December 31, 2016.

Particulars	Amount
Accounts Payable, December 1st (given)	$162,000
Add: Budgeted Purchases, December	169,000
Total Accounts Payable during December	$331,000
Less: Payments in December (entire beginning balance)	162,000
Budgeted Accounts Payable, December 31st	$169,000

Hence, Budgeted Accounts Payable, December 31st is $169,000.