Introduction to Managerial Accounting(Alternate Problems—Set B, Chapter 7 PROBLEM 7-22B)

profilecybacatx
 (Not rated)
 (Not rated)
Chat

 

Introduction to Managerial Accounting, 4th Edition, by Brewer, Garrison, and Noreen

Alternate Problems—Set B, Chapter 7

PROBLEM 7-22B

Completing a Master Budget

(LO2, LO4, LO7, L08, LO9, LO10)

CHECK FIGURE

(2a) February purchases: $254,800

(4) February ending cash balance: $30,400



Spektra Company, a home furnishings store, prepares its master budget on a quarterly basis. The following data

have been assembled to assist in preparing the master budget for the first quarter:

a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account

balances:

Debits

Credits

Cash........................................... $ 31,000

Accounts Receivable................... 135,000

Inventory.................................... 161,700

Building and Equipment (net)..... 160,000

Accounts Payable.......................

$178,000

Capital Stock..............................

65,000

Retained Earnings.......................

0 244,700

$487,700 $487,700

b. Actual sales for December and budgeted sales for the next four months are as follows:

December (actual)....

January....................

February..................

March......................

April........................



$300,000

$330,000

$350,000

$370,000

$360,000



c. Sales are 55% for cash and 45% on credit. All payments on credit sales are collected in the month following

sale. The accounts receivable at December 31 are a result of December credit sales.

d. The company’s gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

e. Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $15,000 per

month; shipping, 4% of sales; other expense, 8% of sales. Depreciation, including depreciation on new assets

acquired during the quarter, will be $24,000.

Each month’s ending inventory should equal 70% of the following month’s cost of goods sold.

g. 25% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the

following month.

h. During February, the company will purchase land for $22,000 cash. During March, land will be purchased for

cash at a cost of $2,000.

i. During January, the company will declare and pay $30,000 in cash dividends.

j. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a

local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a

total of $40,000. The interest rate on these loans is 1% per month and for simplicity we will assume the 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 McGraw-Hill Companies, Inc., 2008. All rights reserved.



1



Introduction to Managerial Accounting, 4th Edition, by Brewer, Garrison, and Noreen

Alternate Problems—Set B, Chapter 7

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

January February

Cash sales.............................. $ 181,500

Credit sales............................

135,000

Total cash collections............ $ 316,500



March



Quarter



January

February March

Budgeted cost of goods sold. . $231,000 * $245,000

Add desired ending inventory

171,500 †

Total needs............................

402,500

Less beginning inventory.......

161,700

Required purchases............... $240,800

* $330,000 sales × 70% cost ratio = $231,000

†$245,000 × 70% = $171,500



Quarter



2. a.



Inventory purchases budget:



b. Schedule of expected cash disbursements for merchandise purchases:

January

December purchases.............. $178,000

January purchases..................

60,200

February purchases................

March purchases....................

Total cash disbursements for

purchases........................... $238,200



February



March



$180,600



Quarter

$178,000

240,800



3. Schedule of expected cash disbursements for selling and administrative expenses:



Salaries and wages................

Advertising............................

Shipping................................

Other expenses......................

Total cash disbursements for

selling and administrative

expenses............................



January

$18,000

15,000

13,200

26,400



February



March



Quarter



$72,600



© The McGraw-Hill Companies, Inc., 2008. All rights reserved.



2



Introduction to Managerial Accounting, 4th Edition, by Brewer, Garrison, and Noreen

Alternate Problems—Set B, Chapter 7

4. Cash budget:

January

Cash balance, beginning........ $ 31,000

Add cash collections.............. 316,500

Total cash available............... 347,500

Less cash disbursements:

Purchases of inventory....... 238,200

Selling and administrative

expenses.........................

72,600

Purchases of land...............

0

Cash dividends...................

30,000

Total cash disbursements. . . 340,800

Excess (deficiency) of cash. . .

6,700

Financing:

Etc.



February



March



Quarter



5. Prepare an absorption costing income statement for the quarter ending March 31 as shown in Schedule 9 in the

chapter.

6. Prepare a balance sheet as of March 31.

    • 10 years ago
    100 % correct answer
    NOT RATED

    Purchase the answer to view it

    blurred-text
    • attachment
      problem_7.docx