PROBLEM 7–16BSchedules of Expected Cash Collections and Disbursements [LO2, LO4, LO8]
CHECK FIGURE
(3) Ending cash balance: $8,800
Ojai Products, a distributor of organic beverages, needs a cash budget for September. The following information is available:
a.The cash balance at the beginning of September is $12,800.
b.Actual sales for July and August and expected sales for September are as follows:
July / August / SeptemberCash sales / $ 6,100 / $ 4,100 / $ 9,500
Sales on account / 21,000 / 26,000 / 37,000
Total sales / 27,100 / 30,100 / 46,500
Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 65% collected in the month following sale, and 21% collected in the second month following sale. The remaining 4% is uncollectible.
c.Purchases of inventory will total $25,000 for September. Thirty percent of a month's inventory purchases are paid for during the month of purchase. The accounts payable remaining from August's inventory purchases total $16,000, all of which will be paid in September.
d.Selling and administrative expenses are budgeted at $14,000 for September. Of this amount, $4,000 is for depreciation.
e.Equipment costing $18,000 will be purchased for cash during September, and dividends totaling $4,000 will be paid during the month.
f.The company maintains a minimum cash balance of $8,800. An open line of credit is available from the company’s bank to bolster the cash balance as needed.
Required:
1.Prepare a schedule of expected cash collections for September.
2.Prepare a schedule of expected cash disbursements for inventory purchases for September.
3.Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September. Assume that any interest will not be paid until the following month.
PROBLEM 7–17BCash Budget with Supporting Schedules [LO2, LO4, LO8]
CHECK FIGURE
(1) August collections: $46,080
(3) July ending cash balance: $3,950
Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Skolt Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:
a.Budgeted monthly absorption costing income statements for July–October are as follows:
July / August / September / OctoberSales / $36,000 / $66,000 / $64,000 / $41,000
Cost of goods sold / 21,000 / 39,000 / 27,000 / 24,000
Gross margin / 15,000 / 27,000 / 37,000 / 17,000
Selling and administrative expenses:
Selling expense / 6,300 / 10,500 / 8,600 / 8,100
Administrative expense* / 3,300 / 6,300 / 6,700 / 6,100
Total selling and administrative expenses / 9,600 / 16,800 / 15,300 / 14,200
Net operating income / $ 5,400 / $10,200 / $21,700 / $ 2,800
*Includes $1,500 depreciation each month.
b.Sales are 20% for cash and 80% on credit.
c.Credit sales are collected over a three-month period with 20% collected in the month of sale, 50% in the month following sale, and 30% in the second month following sale. May sales totaled $41,000, and June sales totaled $33,000.
d.Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $12,100.
e.The company maintains its ending inventory levels at 65% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $13,650.
f.Land costing $4,500 will be purchased in July.
g.Dividends of $1,600 will be declared and paid in September.
h.The cash balance on June 30 is $3,000; the company must maintain a cash balance of at least this amount at the end of each month.
i.The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required:
1.Prepare a schedule of expected cash collections for July, August, and September and for the quarterin total.
2.Prepare the following for merchandise inventory:
a.A merchandise purchases budget for July, August, and September.
b.A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
3.Prepare a cash budget for July, August, and September and for the quarter in total.
PROBLEM 7–18BCash Budget with Supporting Schedules; Changing Assumptions [LO2, LO4, LO8]
CHECK FIGURE
(1) August collections: $51,560
(3) July ending cash balance: $8,600
Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Skolt Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:
a.Budgeted monthly absorption costing income statements for July–October are as follows:
July / August / September / OctoberSales / $41,000 / $71,000 / $51,000 / $46,000
Cost of goods sold / 24,000 / 41,000 / 26,000 / 25,000
Gross margin / 17,000 / 30,000 / 25,000 / 21,000
Selling and administrative expenses:
Selling expense / 7,100 / 11,700 / 8,600 / 7,200
Administrative expense* / 5,300 / 7,000 / 5,900 / 5,700
Total selling and administrative expenses / 12,400 / 18,700 / 14,500 / 12,900
Net operating income / $ 4,600 / $11,300 / $10,500 / $ 8,100
*Includes $1,900 depreciation each month.
b.Sales are 20% for cash and 80% on credit.
c.Credit sales are collected over a three-month period with 15% collected in the month of sale, 65% in the month following sale, and 20% in the second month following sale. May sales totaled $26,000, and June sales totaled $32,000.
d.Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,600.
e.The company maintains its ending inventory levels at 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $4,800.
f.Land costing $4,100 will be purchased in July.
g.Dividends of $1,400 will be declared and paid in September.
h.The cash balance on June 30 is $8,300; the company must maintain a cash balance of at least this amount at the end of each month.
i.The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $44,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
The company’s president is interested in knowinghow reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:
1. Sales continue to be 20% for cash and 80% on credit.However, credit sales from July, August, and September are collected over a three-month period with 25% collected in the month of sale, 55% collected in the month following sale, and 20% in the second month following sale. Credit sales from May and June are collected during the third quarter using the collection percentages specified in the main section.
2. The company maintains its ending inventory levels for July, August, and September at 20% of the cost of merchandise to be sold in the following month. The merchandise inventory at June 30 remains $4,800 and accounts payable for inventory purchases at June 30 remains $11,600.
Required:
1.Using the president’s new assumptions in (1) above, prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
2.Using the president’s new assumptions in (2) above, prepare the following for merchandise inventory:
a.A merchandise purchases budget for July, August, and September.
b.A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
3.Using the president’s new assumptions, prepare a cash budget for July, August, September, and for the quarter in total.
4.Prepare a brief memorandum for the president explaining how his revised assumptions affect the cash budget.
PROBLEM 7–19BIntegration of Sales, Production, and Direct Materials Budgets [LO2, LO3, LO4]
CHECK FIGURE
(1) August collections: $71,838
(3b) August payments: $59,572
Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailedbudgets for the third quarter, July through September, and has assembled the following information toassist in preparing the budget:
a.The Marketing Department has estimated sales as follows for the remainder of the year (in pairs ofswim fins). The selling price of the swim fins is $13 per pair.
July / 5,600 / October / 3,600August / 6,600 / November / 2,600
September / 4,600 / December / 2,600
b.All sales are on account. Based on past experience, sales are expected to be collected in the followingpattern:
43% in the month of sale48% in the month following sale
9% uncollectible.
The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $130,000.
c.The company maintains finished goods inventories equal to 9% of the following month’s sales. Theinventory of finished goods on July 1 will be 504 pairs.
d.Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the companywould like the inventory of geico compound on hand at the end of each month to be equal to 20% ofthe following month’s production needs. The inventory of geico compound on hand on July 1 will be4,552 pounds.
e.Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $11,800 on July 1.
Required:
1.Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both pairs of swim fins and dollars.) Also prepare a schedule of expected cash collections, by month and in total, for the third quarter.
2.Prepare a production budget for each of the months July through October.
3.Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. Also prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter.
PROBLEM 7–20BCash Budget; Income Statement; Balance Sheet [LO2, LO4, LO8, LO9, LO10]
CHECK FIGURE
(1) Ending cash balance: $37,270
The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is given below:
Snapshot, Inc.Balance Sheet
May 31
Assets
Cash ...... / $ 10,350
Accounts receivable ...... / 69,000
Inventory ...... / 34,500
Buildings and equipment, net of depreciation ...... / 576,150
Total assets ...... / $690,000
Liabilities and Stockholders’ Equity
Accounts payable ...... / $ 82,800
Note payable ...... / 15,180
Capital stock ...... / 509,220
Retained earnings ...... / 82,800
Total liabilities and stockholders’ equity ...... / $690,000
The company is in the process of preparing a budget for June and has assembled the following data:
a.Sales are budgeted at $268,000 for June. Of these sales, $75,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected the following month. All of the May 31 accounts receivable will be collected in June.
b.Purchases of inventory are expected to total $196,000 during June. These purchases will all be on account. Fifty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June.
c.The June 30 inventory balance is budgeted at $40,000.
d.Selling and administrative expenses for June are budgeted at $30,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the month.
e.The note payable on the May 31 balance sheet will be paid during June. The company’s interest expense for June (on all borrowing) will be $600, which will be paid in cash.
f.New warehouse equipment costing $8,000 will be purchased for cash during June.
g.During June, the company will borrow $21,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.
Required:
1.Prepare a cash budget for June. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases.
2.Prepare a budgeted income statement for June. Use the absorption costing income statement format as shown in Schedule 9.
3.Prepare a budgeted balance sheet as of June 30.
PROBLEM 7–21BSchedule of Expected Cash Collections; Cash Budget [LO2, LO8]
CHECK FIGURE
(1) July: $264,400
(2) July 31 cash balance: $3,400
Faces Au Natural Corp., a distributor of natural cosmetics, is ready to begin its third quarter, in which peak sales occur. The company has requested a $52,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because the company has experienced difficulty in paying off its loans in the past, the bank’s loan officer has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled:
a.On July 1, the beginning of the third quarter, the company will have a cash balance of $42,000.
b.Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):
May (actual) / $330,000June (actual) / $290,000
July (budgeted) / $330,000
August (budgeted) / $490,000
September (budgeted) / $330,000
Past experience shows that 20% of a month’s sales are collected in the month of sale, 65% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible.
c.Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:
July / August / SeptemberMerchandise purchases / $161,000 / $151,000 / $161,000
Salaries and wages / $68,000 / $68,000 / $58,000
Advertising / $70,000 / $80,000 / $90,000
Rent payments / $28,000 / $28,000 / $28,000
Depreciation / $35,000 / $35,000 / $35,000
Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $166,000.
d.Equipment costing $23,000 will be purchased for cash during July.
e.In preparing the cash budget, assume that the $52,000 loan will be made in July and repaid in September. Interest on the loan will total $1,900.
Required:
1.Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
2.Prepare a cash budget, by month and in total, for the third quarter.
3.If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned? Explain.
PROBLEM 7–22BSchedule of Expected Cash Collections; Cash Budget [LO2, LO8]
CHECK FIGURE
(1) May: $217,480
(2) May ending cash balance: $20,520
Madeleine Bohne, president of the retailer Bohne Products, has just approached the company’s bank with a request for a $34,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inventoriesin support of peak April sales. Because the company has had some difficulty in paying off its loans inthe past, the loan officer has asked for a cash budget to help determine whether the loan should be made.The following data are available for the months April–June, during which the loan will be used:
a.On April 1, the start of the loan period, the cash balance will be $29,000. Accounts receivable on April 1will total $135,000, of which $127,500 will be collected during April and $5,000 will be collectedduring May. The remainder will be uncollectible.
b.Past experience shows that 19% of a month’s sales are collected in the month of sale, 74% in themonth following sale, and 4% in the second month following sale. The other 3% represents bad debtsthat are never collected. Budgeted sales and expenses for the three-month period follow:
April / May / JuneSales (all on account) / $206,000 / $316,000 / $346,000
Merchandise purchases / $119,500 / $169,500 / $149,500
Payroll / $9,000 / $9,000 / $8,000
Lease payments / $13,300 / $13,300 / $13,300
Advertising / $71,500 / $74,200 / $57,200
Equipment purchases / $8,600 / − / −
Depreciation / $9,600 / $9,600 / $9,600
c.Merchandise purchases are paid in full during the month following purchase. Accounts payable formerchandise purchases on March 31, which will be paid during April, total $108,200.
d.In preparing the cash budget, assume that the $34,000 loan will be made in April and repaid in June.Interest on the loan will total $820.
Required:
1.Prepare a schedule of expected cash collections for April, May, and June and for the three months in total.
2.Prepare a cash budget, by month and in total, for the three-month period.
3.If the company needs a minimum cash balance of $20,000 to start each month, can the loan be repaidas planned? Explain.
PROBLEM 7–23BCash Budget with Supporting Schedules [LO2, LO4, LO7, LO8]
CHECK FIGURE
(1a) Third quarter cash collections: $489,000
(3) Third quarter ending cash balance: $38,500
The president of Vacuity, Inc., has just approached the company’s bank seeking short-term financing for the coming year, Year 2. Vacuityis a distributor of commercial vacuum cleaners. The bank has stated that the loan request must be accompanied by a detailed cash budget that shows the quarters in which financing will be needed, as well as the amounts that will be needed and the quarters in which repayments can be made. To provide this information for the bank, the president has directed that the following data be gathered from which a cash budget can be prepared:
a.Budgeted sales and merchandise purchases for Year 2, as well as actual sales and purchases for the last quarter of Year 1, are as follows:
Sales / Merchandise PurchasesYear 1:
Fourth quarter actual ...... / $250,000 / $150,000
Year 2:
First quarter estimated ...... / $350,000 / $230,000
Second quarter estimated ...... / $450,000 / $280,000
Third quarter estimated ...... / $550,000 / $340,000
Fourth quarter estimated...... / $430,000 / $210,000
b.The company typically collects 48% of a quarter’s sales before the quarter ends and another 50% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the actual data for the Year 1 fourth quarter.
c.Some 20% of a quarter’s merchandise purchases are paid for within the quarter. The remainder is paid in the following quarter.