Chapter 8, Problem 8.31P

1

To determine

Compute the expected cash collections.

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.

Answer to Problem 8.31P

The expected cash collection made from January is $304,000, February is $440,000, March is $540,000, and quarter is $1,284,000.

Explanation of Solution

Compute expected cash collection.

Particulars	January	February	March	Quarter
Cash sales	$80,000	$120,000	$60,000	$260,000
Credit sales	$224,000	$320,000	$480,000	$1,024,000
Total cash collectible	$304,000	$440,000	$540,000	$1,284,000

2

To determine

Compute merchandise purchase budget and expected cash disbursements for merchandise purchase.

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.

Answer to Problem 8.31P

The merchandise purchase budget for January is $270,000, February is $315,000, and March is $165,000 and $750,000 and expected cash disbursement for January is $228,000, February is $292,500, March is $240,000 and Quarter is $760,500.

Explanation of Solution

1. Merchandise purchase budget

Particulars	January	February	March	Quarter
Budgeted cost of goods sold	$240,000	$360,000	$180,000	$780,000
Add:
Desired ending merchandise inventory	$90,000	$45,000	$30,000	$30,000
Total needs	$330,000	$405,000	$210,000	$810,000
Less: Beginning inventory	$60,000	$90,000	$45,000	$60,000
Required purchases	$270,000	$315,000	$165,000	$750,000

2. Expected cash disbursements for merchandise purchases:

Particulars	January (in $)	February (in $)	March (in $)	Quarter (in $)
December purchases	93,000			93,000
January purchase	135,000	135,000		270,000
February purchase		157,000	157,000	315,000
March purchase			82,500	82,500
Total cash disbursements for purchases	228,000	292,500	240,000	760,500

3

To determine

Compute the cash budget table.

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.

Answer to Problem 8.31P

The cash budget table has ending cash balance on January of $30,000, February of $30,800, March of $42,900, and Quarter of $42,900.

Explanation of Solution

Particulars	January (in $)	February (in $)	March (in $)	Quarter (in $)
Beginning cash balance	48,000	30,000	30,800	48,000
Add: Collections from customers	304,000	440,000	540,000	1,284,000
Total Cash available	352,000	470,000	570,800	1,332,000
Less: Cash disbursements:
Inventory purchases	228,000	292,500	240,000	760,500
Selling and administrative expenses	129,000	145,000	121,000	395,000
Equipment purchase	0	1,700	84,500	86,200
Cash dividends	45,000	0	0	45,000
Total cash disbursements	402,000	439,200	445,500	1,286,700
Excess of cash over disbursements	(50,000)	30,800	125,300	45,300
Financing:
Borrowings	80,000	0	0	80,000
Repayments	0	0	(80,000)	(80,000)
Interest ($80,000×1%×3)	0	0	(2,400)	(2,400)
Total financing	80,000	0	(82,400)	(2,400)
Ending cash balance	30,000	30,800	42,900	42,900

4

To determine

Prepare absorption costing income statements.

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.

Answer to Problem 8.31P

Income statement shows net income of $80,600.

Explanation of Solution

Computation of Income Statements:

Particulars	Amount	Amount
Sales		$1,300,00
Cost of goods sold:
Beginning inventory	$60,000
Purchases	$750,000
Goods available for sales	$810,000
Ending inventory	$30,000	$780,000
Gross margin		$520,000
Selling and Administrative expenses:
Salaries and wages	$81,000
Advertising	$210,000
Shipping (5% of sales)	$65,000
Depreciation	$42,000
Other expenses (3% on sales)	$39,000	$437,000
Net operating income		$83,000
Less: Interest Expenses		$2,400
Net income		$80,600

Working notes:

Salary and wages

  $\begin{array}{l}Totalsalariesandwages=Salariesandwages\times Numberofmonths\\ Totalsalariesandwages=\$27,000\times 3\\ Totalsalariesandwages=\$81,000\end{array}$

Advertising

  $\text{Total advertising expenses = Advertising }\times \text{ Number of months}$

  $\text{Total advertising expenses = \$70,000}\times \text{ 3}$

  $\text{Total advertising expenses = \$210,000}$

5

To determine

Prepare balance sheet as of March 31.

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.

Answer to Problem 8.31P

Balance sheet has balance of assets and liabilities of $727,100

Explanation of Solution

Particulars	Amount (in $)	Amount (in $)
Assets
Current Assets:
Cash	$42,900
Accounts receivable ($300,000×80%)	240,000
Inventory	30,000
Total current asset		312,900
Building and equipment		414,200
Total asset		727,100
Liabilities and stockholder’s equity
Current liabilities
Accounts payable ($165,000×50%)		82,500
Stockholder’s equity:
Common stock	500,000
Retained earning	144,600	644,600
Total liabilities and stockholder’s equity		727,100

Working notes:

Retained earning

Particulars	Amount (in $)
Beginning retained earnings	109,000
Add: Net income	80,600
Total	189,600
Less: Cash dividends	45,000
Ending retained earning	144,600