Chapter 8, Problem 8.27P

1

To determine

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Compute the expected cash collections for April, May, and June.

Answer to Problem 8.27P

The expected cash collection for April is $104,000; May is $106,800; and June is $123,600.

Explanation of Solution

Particulars	April	May	June	Total
Cash sales	$60,000	$66,000	$78,000	$204,000
Credit sales:
March	$36,000			$36,000
April	$8000	$32,000		$40,000
May		$8,800	$35,200	$44,000
June			$10,400	$10,400
Total Cash Collections	$104,000	$106,800	$123,600	$334,000

Working notes:

Cash sales are 60% of Total sales.

April: $(\$100,000\times 60\%)=\$60,000$

May: $(\$110,000\times 60\%)=\$66,000$

June: $(\$130,000\times 60\%)=\$78,000$

Credit sales are equal to 40% of Total sales.

Month	Particulars	Amount
March	Accounts receivable	$36,000
April	Credit sales ($100,000×40%)	$40,000
	Received in April ($40,000×20%)	8,000
	Received in May ($40,000×80%)	32,000
May	Credit sales ($110,000×40%)	$44,000
	Received in April ($44,000×20%)	$8,800
	Received in May ($44,000×80%)	$35,200
June	Credit sales ($130,000×40%)	$52,000
	Received in April ($52,000×20%)	$10,400

2

To determine

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Compute the budgeted merchandise purchase for April, May, and June.

Answer to Problem 8.27P

The budgeted merchandise purchase for April is $63,000; May is $72,000; and June is $81,000.

Explanation of Solution

Particulars	April	May	June	Total
Cost of Goods Sold	$60,000	$66,000	$78,000	$204,000
Add: Expected ending merchandise inventory	$43,000	$49,000	$52,000	$114,000
Total requirement	$103,000	$115,000	$130,000	$348,000
Less: Inventory at beginning	$40,000	$43,000	$49,000	$132,000
Required Purchase	$63,000	$72,000	$81,000	$216,00

Working notes:

1. Cost of goods sold:

April: $(\$66,000\times 50\%)+\$10,000=\$43,000$

May: $(\$78,000\times 50\%)+\$10,000=\$49,000$

June: $(\$140,000\times 60\%\times 50\%)+\$10,000=\$52,000$

2. Inventory at beginning:

April- Inventory balance at end of March - $40,000

May- Inventory balance at end of April - $43,000

June- Inventory balance at end of May - $49,000

3

To determine

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Compute the expected cash disbursements for merchandise purchases for April, May, and June.

Answer to Problem 8.27P

The expected cash disbursement for merchandise purchases for April is $57,600: May $63,900; and June is $72,800.

Explanation of Solution

Particulars	April	May	June	Total
Cash Purchase	$6,300	$7,200	$8,180	$21,600
Credit Purchase	$51,300	$56,700	$64,800	$172,800
Total Cash Disbursements	$57,600	$63,900	$72,800	$194,400

Working notes:

1. Cash purchase: 10% of merchandise inventory purchases. Cash purchases would be 10% of required purchases.

April: $(\$63,000\times 10\%)=\$6,300$

May: $(\$72,000\times 10\%)=\$7,200$

June: $(\$81,000\times 10\%)=\$8,100$

2. 90% of purchases are credit purchase in the month subsequent to the purchase.

Month	Particulars	Amount
March	Accounts payable	$51,300
April	90% of required April Purchases	$56,700
May	90% of required May purchases	$64,800

4

To determine

Introduction: Budget means the estimation made for the usage of money to decide the amount that executor will need to execute the plan. The budgeting process refers to the process in which future business activity is planned for preparing the way of performing goals by mapping the formal plan.

Prepare a budgeted balance sheet at June 30.

Answer to Problem 8.27P

Budgeted balance sheet shows assets and liability of $334,600

Explanation of Solution

Particulars	Amount
Assets:
Cash	$144,000
Accounts Receivable	$41,600
Inventory	$52,000
Building	$97,000
Total Assets	$334,600
Liabilities and Equity Shareholders:
Accounts Payable	$72,900
Common stock	$70,000
Retained Earnings	$191,700
Total Liabilities	$334,600

Working notes:

1. Cash

Particulars	Amount
Opening balance	$55,000
Add: Total Cash Collections	$334,400
Less: Selling and Administrative expenses	($51,000)
Cash Ending balance	$144,000

2. Accounts receivable

  $\$130,000\times 40\%\times 80\%=\$41,600$

3. Inventory

  $(\$140,000\times 60\%\times 50\%)+\$10,000=\$52,000$

4. Building

Particulars	Amount
Cost	$100,000
Less: Depreciation ($1,000×3)	($3,000)
Net Value	$97,000

5. Accounts payable

Particulars	Amount
Total Purchase for June	$81,000
Less: Cash Purchase	($8,100)
Accounts Payable	$72,900

6. Retained earnings

Particulars	Amount
Beginning Balance	$109,700
Add: Income for April	25,000
Income for May	27,500
Income for June	32,500
Less: Depreciation for April	1,000
Depreciation for May	1,000
Depreciation for June	1,000
Ending Balance	$191,700