Chapter 8, Problem 31P

To determine

(1)

Expected cash collection for the quarter.

Introduction:

A budget is a financial statement that includes the fore casted items for a particular period of time. Fore casted items include revenue, sales, profit and any other item that budget maker wants to include.

Answer to Problem 31P

Solution:

The total collections of the quarter are $1,284,000.

Explanation of Solution

Schedule of expected cash collection
Particulars	December	January	February	March	Quarter
Budgeted sales	$280,000	$400,000	$600,000	$300,000
Cash sales (20% of current month sales)	$56,000.0	$80,000.0	$120,000.0	$60,000.0	$260,000.0
Credit sales (80% of previous month sales)		$224,000	$320,000	$480,000	$1,024,000
Total collections		$304,000	$440,000	$540,000	$1,284,000

Table (1)

Hence, the total collections of the quarter are $1,284,000.

To determine

(2)

The merchandise purchases of budget.

Answer to Problem 31P

Solution:

The total required purchases are $750,000.

Explanation of Solution

Schedule of expected cash collection
Particulars	December	January	February	March	April	Quarter
Bugeted sales	$280,000	$400,000	$600,000	$300,000	$200,000	$1,300,000
Budgeted cost of good sold (60% of sales)	$168,000.0	$240,000.0	$360,000.0	$180,000.0	$120,000.0	$780,000.0
Add: Desired ending inventory (25% of next month cost of goods sold)	$60,000.00	$90,000.00	$45,000.00	$30,000.00		$165,000.00
Total needs	$228,000	$330,000	$405,000	$210,000		$945,000.00
Less: Beginning inventory(Ending inventory of previous month)		$60,000.00	$90,000.00	$45,000.00		$195,000.00
Required purchases		$270,000.00	$315,000.00	$165,000.00		$750,000.00

Hence, the total required purchases are $750,000.

To determine

(2a)

Cash disbursement for merchandise inventory.

Answer to Problem 31P

Solution:

The cash disbursement for merchandise inventory are $760,000.

Explanation of Solution

Schedule of expected cash disbursement-Merchandise purchases
Particulars	January	February	march	Quarter
December purchases	$93,000			$93,000
January purchases	135000	135000		$270,000
February Purchases		157500	157500	$315,000
March Purchases			82500	$82,500
Total distributions	$228,000	292500	240000	$760,500

Table (2)

Hence, the cash disbursement for merchandise inventory are $760,000.

To determine

(2b)

Cash Disbursement for selling and administrative expenses.

Answer to Problem 31P

Solution:

The total cash disbursement for selling and administrative are $395,000.

Explanation of Solution

Schedule of expected cash disbursement-selling and administration expenses
Particulars	January	February	March	Quarter
Salaries and wages	$27,000	$27,000	$27,000	$81,000
Advertisement	$70,000	$70,000	$70,000	$210,000
Shipping	20000	30000	15000	$65,000
Other expenses	12000	18000	9000	$39,000
Total Disbursement	$129,000	$145,000	$121,000	$395,000

Table (3)

Hence, the total cash disbursement for selling and administrative are $395,000.

To determine

(3)

Cash budget

Answer to Problem 31P

Solution:

The ending balance of the January, February and March is $30,000, $30,800 and $42,900 respectively.

Explanation of Solution

Cash budget-merchandise purchase
Particulars	January	February	March
Cash balance, beginning	$48,000	$30,000	30,800
Add: cash collections	$304,000	$440,000	540,000
Total cash collections (A)	$352,000	$470,000	$570,800
Less: Cash Disbursement
Inventory	228,000	292,500	240,000
Selling and administrative	129,000	145,000	121,000
Purchase of equipment			84,500
cash dividends	45,000	1,700	0
Total Cash disbursement(B)	402,000	439,200	445,500
Excess(Deficiency) of cash(A-B)	-$50,000	$30,800	$125,300
Financing needed	80,000	0	0
Less: Repayment of loan			$80,000
Less: Repayment of interest on loan			$2,400
Cash balance, ending	$30,000	$30,800	$42,900
Minimum balance to be maintained	$30,000	$30,800	$42,900

Table (4)

Hence, the ending balance of the January, February and March are $30,000, $30,800 and $42,900 respectively.

To determine

(4)

To prepare:

The income statement of H for the Quarter ending March 31.

Answer to Problem 31P

Solution:

The net income of the H Company is $80,600.

Explanation of Solution

H Company
Income statement
For the quarter ended March 31
Sales		$1,300,000
Cost of goods sold		$780,000.0
Gross margin		$520,000.0
Net operating income
Selling and administrative expenses
Salaries	81,000
Advertisement	210,000
Shipping	65,000
Depreciation	42,000
Other expenses	39,000	437,000
Operating income		$83,000.0
Interest expenses		2,400
Net income		$80,600.0

Table (5)

Hence, the net income of the H Company is $80,600.

To determine

(5)

To prepare:

Balance sheet of H Company.

Explanation of Solution

H Company
Balance sheet
31-Mar
Assets
	Amount	Amount
Current assets:
Cash		429,000
Account receivable(80% of $300,000)
Inventory		30,000
Total current assets		312,900
building and equipment. Net(370,000 + $86,200 – 42,000)		414,200
Total assets		727,100
Liability and Equity
Current Liabilities
Accounts payable(50% of 165,000)		82,500
Stock holder's Equity:
capital	500,000
retained earnings	144,600	644,600
total liabilities and Equity		727,100

Table (6)