Accounting Homework 4 Questions

Question 1

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$490,000	$690,000	$220,000	$1,400,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $420,000, and March sales totaled $450,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Question 2

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Total cash receipts	$	280,000	$	400,000	$	330,000	$	350,000
Total cash disbursements	$	344,000	$	314,000	$	304,000	$	324,000

The company’s beginning cash balance for the upcoming fiscal year will be $45,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Repayments, and interest, should be indicated by a minus sign.)

Question 3

Required information

[The following information applies to the questions displayed below.]

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	86,000
Accounts receivable		138,000
Inventory		75,000
Plant and equipment, net of depreciation		229,000
Total assets	$	528,000
Liabilities and Stockholders’ Equity
Accounts payable	$	90,000
Common stock		351,000
Retained earnings		87,000
Total liabilities and stockholders’ equity	$	528,000

Beech’s managers have made the following additional assumptions and estimates:

• Estimated sales for July, August, September, and October will be $400,000, $420,000, $410,000, and $430,000, respectively.
• All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
• Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
• Monthly selling and administrative expenses are always $56,000. Each month $8,000 of this total amount is depreciation expense and the remaining $48,000 relates to expenses that are paid in the month they are incurred.
• The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Question 4

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

• The cash balance on December 1 is $50,600.
• Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	74,400	$	86,000	$	85,000
Sales on account	$	515,000	$	533,000	$	672,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

• Purchases of inventory will total $317,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $190,000, all of which will be paid in December.
• Selling and administrative expenses are budgeted at $526,000 for December. Of this amount, $58,600 is for depreciation.
• A new web server for the Marketing Department costing $78,000 will be purchased for cash during December, and dividends totaling $15,500 will be paid during the month.
• The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

	Total cash collections Total cash disbursements

Calculate the expected cash disbursements for merchandise purchases for December.

	Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance