Concept explainers
a)
Prepare a sales budget.
a)
Explanation of Solution
Sales Budget: The sales budget is the budget prepared to estimate the revenue, the expected number of units to be sold and the expected selling price for each product. The sales budget is the first step for an operating budget and the basis for the production and cost of goods sold budget.
Prepare a sales budget:
Sales Budget | ||||
Particulars | October | November | December | Total |
Cash sales (40% of sales) | $100,000 | $108,000 | $116,640 | |
Sales on account (60% of sales) | $150,000 | $162,000 | $174,960 | |
Total budgeted sales | $250,000 | $270,000 | $291,600 | $811,600 |
Table (1)
Note: The sales have increased by 8 percent per month.
b)
Prepare a schedule of cash receipts
b)
Explanation of Solution
Prepare a schedule of cash receipts:
Schedule of cash receipts | ||||
Particulars | October | November | December | Total |
Current cash sales | $100,000 | $108,000 | $116,640 | |
Add: Collections from | $0 | $150,000 | $162,000 | |
Total collections | $100,000 | $258,000 | $278,640 | $636,640 |
Table (2)
c)
Prepare inventory purchase budget
c)
Explanation of Solution
Production budget: Production budget is the estimation or projection of number of units the company needs to produce to equate the planned sales or budgeted sales and inventory.
Prepare inventory purchase budget:
Inventory Purchases Budget | ||||
Particulars | October | November | December | Total |
Budgeted cost of goods sold | $150,000 | $162,000 | $174,960 | $486,960 |
Add: Desired ending inventory (60% of sales) | $16,200 | $17,496 | $12,000 | $12,000 |
Inventory needed | $166,200 | $179,496 | $186,960 | |
Less: Beginning inventory (10% of next month’s cost of goods sold) | $0 | $16,200 | $17,496 | |
Required purchases (on account) | $166,200 | $163,296 | $169,464 | $50,839 |
Table (3)
d)
Prepare a cash payment budget for inventory purchase.
d)
Explanation of Solution
Cash payments budget: This budget shows the total cash disbursements for the budgeted period.
Construct a cash payment budget for inventory purchase:
Schedule of Cash Payments Budget for Inventory Purchases | ||||
Particulars | October | November | December | Total |
Required purchases (on account) | $166,200 | $163,296 | $169,464 | $50,839 |
70 % of Payment of current month's accounts payable | $116,340 | $114,307 | $118,625 | |
30% of Payment for prior month's accounts payable | $0 | $49,860 | $48,989 | |
Total budgeted payments for inventory | $116,340 | $164,167 | $167,614 | $448,121 |
Table (4)
e)
Prepare a selling and administrative expenses budget.
e)
Explanation of Solution
Selling and administrative expense budget: This budget shows the estimated selling and administrative expenses for the budgeted period.
Prepare a selling and administrative expenses budget:
Selling and Administrative Expense Budget | ||||
Particulars | October | November | December | Pro forma Data |
Salary expense | $18,000 | $18,000 | $18,000 | |
Sales commissions, 5% of sales | $12,500 | $13,500 | $14,580 | $14,580 (a) |
Supplies expense, 2% of sales | $5,000 | $5,400 | $5,832 | |
Utilities | $1,400 | $1,400 | $1,400 | $1,400 (b) |
$4,000 | $4,000 | $4,000 | $12,000 (c) | |
Rent | $4,800 | $4,800 | $4,800 | |
Miscellaneous | $1,200 | $1,200 | $1,200 | |
Total S&A expenses | $46,900 | $48,300 | $49,812 | $145,012 (d) |
Table (5)
f)
Construct a cash payments budget for selling and administrative expenses
f)
Explanation of Solution
Construct a cash payments budget for selling and administrative expenses:
Schedule of cash Payments for selling and administrative expenses | ||||
Particulars | October | November | December | Pro forma Data |
Salary expense | $18,000 | $18,000 | $18,000 | |
Prior month's sales commission 100% | $0 | $12,500 | $13,500 | |
Supplies expense | $5,000 | $5,400 | $5,832 | |
Prior month's utilities, 100% | $0 | $1,400 | $1,400 | |
Depreciation on store fixtures | $0 | $0 | 0 | |
Rent | $4,800 | $4,800 | $4,800 | |
Miscellaneous | $1,200 | $1,200 | $1,200 | |
Total payments for S&A expenses | $29,000 | $43,300 | $44,732 | $117,032 (e) |
Table (6)
g)
Prepare a
g)
Explanation of Solution
Cash Budget: This budget gives an estimation of all the
Prepare a cash budget:
Cash Budget | ||||
Particulars | October | November | December | Total |
Beginning cash balance | $0 | $12,660 | $12,000 | |
Add cash receipts | $100,000 | $258,000 | $278,640 | $636,640 |
Cash available (1) | $100,000 | $270,660 | $290,640 | |
Less: Payments | ||||
For inventory purchases | $116,340 | $164,167 | $167,614 | $448,121 |
For S&A expenses | $29,000 | $43,300 | $44,732 | $117,032 |
Purchase of store fixtures | $164,000 | $0 | $0 | $164,000 |
Interest expense | $0 | $2,220 | $1,730 | $3,950 |
Total budgeted payments (2) | $309,340 | $209,687 | $214,076 | |
Payments minus receipts | ||||
Surplus (shortage) | ($209,340) | $60,973 | $76,564 | |
Financing activity | ||||
Borrowing (repayment) (3) | $222,000 | ($48,973) | ($64,564) | $108,463 |
Ending cash balance | $12,660 | $12,000 | $12,000 | $12,000 |
Table (7)
Workings note 1: Determine the interest expense for the month of November:
Workings note 2: Determine the interest expense for the month of December:
h)
Prepare a pro forma income statement.
h)
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare a pro forma income statement for the quarter:
Company H | |
Pro Forma Income Statement | |
For the Quarter Ended December 31, 2015 | |
Sales revenue | $811,600 |
Less: Cost of goods sold | ($486,960) |
Gross margin | $324,640 |
Less: Selling & Administrative expenses | ($145,012) |
Operating income | $179,628 |
Less: Interest expense | ($3,950) |
Net income | $175,678 |
Table (8)
i)
Prepare a pro forma
i)
Explanation of Solution
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare a pro forma balance sheet for the quarter:
Company H | ||
Pro Forma Balance Sheet | ||
December 31, 2015 | ||
Assets | Amount | Amount |
Cash | $12,000 | |
Accounts receivable | $174,960 | |
Inventory | $12,000 | |
Store fixtures | $164,000 | |
($12,000) | ||
Book value of fixtures | $152,000 | |
Total assets | $350,960 | |
Liabilities | ||
Accounts payable | $ 50,839 | |
Utilities payable | $1,400 | |
Sales commissions payable | $14,580 | |
Line of credit liability | $108,463 | |
Equity | ||
$175,678 | ||
Total liabilities and equity | $350,960 |
Table (9)
j)
Prepare a pro forma statement of
j)
Explanation of Solution
Statement of cash flows: Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Prepare a pro forma statement of cash flows for the quarter:
Company H | ||
Pro Forma Statement of Cash Flows | ||
For the Quarter Ended December 31, 2015 | ||
Cash flows from operating activities | ||
Cash receipts from customers | $636,640 | |
Cash payments for inventory | ($448,121) | |
Cash payments for Selling & Administrative expenses | ($117,032) | |
Cash payments for interest expense | ($3,950) | |
Net cash flows from operating activities | $67,537 | |
Cash flows from investing activities | ||
Cash payment for store fixtures | ($164,000) | |
Cash flow from financing activities | ||
Net Inflow from line of credit | $108,463 | |
Net increase in cash | $12,000 | |
Add: Beginning cash balance | $0 | |
Ending cash balance | $12,000 |
Table (10)
Want to see more full solutions like this?
Chapter 14 Solutions
Survey Of Accounting
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education