Master Budget - Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them. Requirement 1- To prepare: Monthly sales budget

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

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Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

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Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

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Answer 5

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

Answer 6

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

Answer 7

Chapter 22, Problem 8BPSB

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Answer 8

Expert Solution

Answer to Problem 8BPSB

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)

	January	February	March	Quarter
Sales in units	6,000	8,000	10,000	24,000
Selling price per unit	$45	$45	$45	$45
Dollar sales value($)	270,000	360,000	450,000	1,080,000

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion:

Thus, the monthly sales budget has been prepared both in units and sales value.

Answer 13

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

Answer 14

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 2-

To prepare:

Merchandise purchases budget

Answer 15

Expert Solution

Answer to Problem 8BPSB

Budgeted purchases:

Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets

	January	February	March	Quarter
Budgeted Sales for the month	6,000	8,000	10,000
Ending inventory in units	2,000	2,500	2,250
Total Needs	8,000	10,500	12,250
Less: Beginning inventory	(5,000)	(2,000)	(2,500)
Merchandise purchases in units required	3,000	8,500	9,750
Cost per unit	$30	$30	$30
Dollar value of purchases ($)	90,000	255,000	292,500	637,500

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

January − 6,000 units
February − 8,000 units
March − 10,000 units

Ending inventory −

January − 2,000 units
February − 2,500 units
March − 2,250 units

Beginning inventory-

−Ending inventory of the previous month shall be beginning inventory of current month.

January − 5,000 units (given)
February - 2,000 units
March − 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=2,000 units+6,000 units–5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units–2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units–2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000 Dollar value of purchase for February=8,500 units×$30 Dollar value of purchase for February=$255,000 Dollar value of purchase for March=9,750 units×$30 Dollar value of purchase for March=$292,500

Conclusion:

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

Answer 20

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

Answer 21

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 3-

To prepare:

Monthly selling expense Budget

Answer 22

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly Selling Expense budgets

	January ($)	February ($)	March ($)
Sales commissions	54,000	72,000	90,000
Sales salaries	7,500	7,500	7,500
Selling expenses	61,500	79,500	97,500

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000 Sales Commission for January=$54,000 Sales Commission for February=20%×$360,000 Sales Commission for February=$72,000 Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month= $90,000 12 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion:

Thus, the selling expense budget is prepared for the month of January, February and March.

Answer 27

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

Answer 28

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Answer 29

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly general and administrative budgets

	January	February	March
General and administrative salaries	12,000	12,000	12,000
Maintenance expense	3,000	3,000	3,000
Total general and administrative expenses	15,000	15,000	15,000

Answer 30

Expert Solution

Answer 31

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total General and administrative expenses for March=$15,000

Conclusion:

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

Answer 34

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

Answer 35

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Answer 36

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Capital Expenditures budget

	January	February	March	Quarter
Purchase of Equipment	72,000	96,000	28,800	196,800
Purchase of Land	0	0	150,000	150,000
Total Capital expenditure	72,000	96,000	178,800	346,800

Answer 37

Expert Solution

Answer 38

Expert Solution

Answer 39

Expert Solution

Answer 40

Explanation of Solution

Given-

Purchase of Equipment in January = $72,000
Purchase of Equipment in February = $96,000
Purchase of Equipment in March = $28,800
Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion:

Thus, Capital expenditure budget is prepared.

Answer 41

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

Answer 42

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 6-

To prepare:

Monthly Cash Budget

Answer 43

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Monthly cash budgets

	January	February	March
Beginning cash balance	36,000	198,000	123,000
Cash receipts:
Cash sales	67,500	90,000	112,500
Collection from -
Beginning accounts receivable	315,000	210,000
Credit sales of January		121,500	81,000
Credit sales of February			162,000
Total cash receipts	382,500	421,500	355,500
Total cash available	418,500	619,500	478,500
Less: Cash disbursements-
Merchandise purchases
Beginning accounts payable	72,000	288,000
January accounts payable		18,000	72,000
February accounts payable			51,000
Selling expenses	61,500	79,500	97,500
General and administrative expenses	15,000	15,000	15,000
Capital Expenditure	72,000	96,000	178,800
Taxes			90,000
Total cash disbursements	220,500	496,500	504,300
Surplus/ ( deficiency) of cash	198,000	123,000	(25,800)
Borrowing / ( Repayment)			61,800
Ending cash balance	198,000	123,000	36,000

Answer 44

Expert Solution

Answer 45

Expert Solution

Answer 46

Expert Solution

Answer 47

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

January-$315,000
February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$270,000×75%]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={40%×January Credit sales}+{60%×February Credit sales} Credit sale receipt ={40%×[Total January sales ×75%]}+{60%×[Total February sales ×75%]} Credit sale receipt ={40%×[$270,000×75%]}+{60%×[$360,000×75%]} Credit sale receipt ={40%×$202,500}+{60%×$270,000} Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

January-$72,000
February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchases Accounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$90,000)+( 20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

Conclusion:

Thus, Cash budget is prepared.

Answer 48

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

Answer 49

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 7-

To prepare:

Budgeted income statement

Answer 50

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Income Statement

Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Cost of merchandise sold		720,000
Gross Profit		360,000
Operating expenses:
Selling expenses	238,500
General and administrative expenses	45,000
Depreciation expense	21,425	304,925
Income before tax		55,075
Tax @ 40%		22,030
Net operating income		33,045

Answer 51

Expert Solution

Answer 52

Expert Solution

Answer 53

Expert Solution

Answer 54

Explanation of Solution

Income before tax-

Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Depreciation expenseIncome before tax=$1,080,000−$720,000−$238,500−$45,000−$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before tax−Tax ExpenseNet Operating income=$55,075−$22,030Net Operating income=33,045

Conclusion:

Thus, Income statement is prepared for the quarter.

Answer 55

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion:

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

Answer 56

To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 8-

To prepare:

Budgeted Balance sheet.

Answer 57

Expert Solution

Answer to Problem 8BPSB

ISLE Corporation
Balance sheet as of March 31, 2016

	Amount ($)	Amount ($)
Assets
Cash	36,000
Accounts receivable	445,500
Inventory	67,500
Total current assets		549,000
Land		150,000
Equipment gross	736,800
Accumulated depreciation	(88,925)
Equipment net		647,875
Total assets		1,346,875
Stockholder's Equity and Liabilities
Accounts payable	496,500
Bank loan payable	76,800
Tax payable	22,030
Current liabilities		595,330
Common stock		472,500
Retained earnings		279,045
Total Stockholder's Equity and Liabilities		1,346,875

Answer 58

Expert Solution

Answer 59

Expert Solution

Answer 60

Expert Solution

Answer 61

Explanation of Solution

Assets Given,

Land = $150,000 (from Requirement 5)

Cash = $36,000 (from Requirement 6)

Accounts receivable-

Accounts receivable=Beginning receivables+ Credit sales−CollectionsAccounts receivable=$525,000+$810,000−$889,500Accounts receivable=$445,500

Inventory-

Inventory=Beginning inventory+Purchases−Cost of goods soldInventory=$150,000+$637,500−$720,000Inventory=$67,500

Calculation of total current assets is as under-

Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-

Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-

Equipment =Equipment gross−Accumulated Depreciation Equipment =$736,800−$88,925Equipment ==$647,875

Calculation of total assets is as under-

Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities

Given,

Taxes payable = 22,030 (from requirement 7)

Common stock = $472,500

Accounts payable-

Accounts payable =Beginning payables+Purchases−PaymentsAccounts payable =$360,000+$637,500−$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-

Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875