15. Quillin Company had the following budgeted information for October:
1.
October 1 cash balance $3,500
2.
Expected sales 2,500 units at $25 each (half in cash, remainder on credit due in
November)
3.
Inventory purchases 3,000 units at $14 each (all in cash)
4.
Rent $1,450
5.
Payroll $1,000
6.
Utilities and other costs $4,500
7.
Accounts receivable balance Oct. 1, $35,000 (includes $700 bad debts allowance)
Use this amount for both parts A and D.
A.
What is the budgeted collection on accounts receivable for October?
B.
What are the total cash disbursements for October?
C.
What is the ending cash balance for October?
D.
Assuming sales are collected 75% in the month of sale and 25% the following month,
what is the ending cash balance for October?
$34,300 (see table below)
B.
$48,950 (see table below)
C.
$20,100 (see table below)
D.
$35,725 (see table below)
Payroll
Utilities, etc.
Total cash disbursements
Ending cash balance
16. Fredder Company usually sells about 20% of its merchandise during a month for cash with the
remaining sales on account. The company’s accounts receivable payment history is as follows: 30% in
the month of sale, 50% in the month following, and 15% in the second month following sale. Total
budgeted sales for the second quarter are as follows:
April
$100,000
May
120,000
June
80,000
Assume all questions relate to the month of June.
A.
What are the expected cash sales?
B.
What are the expected receipts from accounts receivable for sales made in April?
C.
What are the expected receipts from accounts receivable for sales made in May?
D.
What are the total expected cash receipts?
E.
From the above accounts receivable history information, receipts from accounts
receivable do not equal 100%. Why not? Does this amount appear on the cash budget?
June cash sales = $80,000 0.2 = $16,000
Receipts on accounts receivable for sales made in April = (0.8)($100,000)(0.15) =
$12,000
Receipts on accounts receivable for sales made in May = (0.8)($120,000)(0.50) =
Total cash expected in June = $16,000 + $12,000 + $48,000 + (0.8)($80,000)(0.30) =
$95,200
cash budget because there is no cash involved.
17. Rivers Company purchases merchandise on account. In general, Rivers pays 50% in the month of
purchase and 50% in the following month. All payments in the month of purchase qualify for a 2%
cash discount. First quarter budgeted purchases are:
January
$90,000
February
80,000
March
96,000
A.
What are the total cash disbursements expected in February?
B.
What are the total cash disbursements expected in March?
C.
Now suppose that there is no cash discount for purchases made in the month of
purchase. Now what are the total cash disbursements expected in February? In March?
18. Wexler Company expects sales of $40,000 in July, $50,000 in August, and $30,000 in September.
Wexler’s experience is that 40% of sales are cash, and the remainder is on account. Accounts
receivable are paid: 70% in the month of sale, and 25% in the following month.
A.
What are the expected cash receipts on accounts receivable in August for July sales?
B.
What are the expected cash receipts on accounts receivable in August for August sales?
C.
What are the total expected cash receipts on accounts receivable in August?
D.
What are the total expected cash receipts in August?
E.
How much of July sales are deemed to be uncollectible?
A.
Expected cash receipts on accounts receivable in August for July sales = $6,000
[(0.6 $40,000 0.25) = $6,000]
A.
$84,200 (see table below)
B.
$87,040 (see table below)
January purchases (0.5)($90,000)
39,200
March purchases (0.5)($96,000)(0.98)
Total cash disbursements
C.
February cash disbursements = $85,000
March cash disbursements = $88,000
January purchases (0.5)($90,000)
$45,000
February purchases:
40,000
$40,000
March purchases (0.5)($96,000)
Total cash disbursements
$85,000
$88,000
B.
Expected cash receipts on accounts receivable in August for August sales = $21,000
[$21,000 = (0.60 $50,000 0.70)]
C.
Total expected cash receipts on accounts receivable in August = $27,000
[$27,000 = (0.6 $40,000 0.25) + (0.60 $50,000 0.70)]
Total expected cash receipts in August = $47,000
[$47,000 = (0.6 $40,000 0.25) + (0.60 $50,000 0.70) + (0.4 $50,000)]
July sales of $40,000 .6 = $24,000 on account
$24,000 .05 = $1,200 uncollectible
19. Shorter Company developed the following data for the month of June.
1.
June 1 cash balance $2,300
2.
Cash sales in June $67,000
3.
Credit sales for June are $20,000; for May $10,000; and for April $16,000. 60% of credit
sales are collected in the month of sale, 20% in the following month, and 10% in the
second month following the sale.
4.
Purchases for May were $34,000 and for June are $40,000. Half of purchases are paid in
the month of purchase and the remainder in the following month.
5.
June salaries are $28,400, utilities are $1,090, and depreciation on the building is $1,000.
A.
Anticipated cash receipts from accounts receivable in June equal
$__________________.
B.
Anticipated total cash available in June is $__________________.
C.
June cash payments for purchases are $__________________.
D.
Anticipated cash balance on June 30 is $__________________.
Anticipated cash receipts from accounts receivable in June = $15,600
[15,600 = ($20,000 .6) + ($10,000 .2) + ($16,000 .1)]
B.
Anticipated total cash available in June = $84,900
[84,900 = $67,000 + $15,600 + $2,300]
C.
June cash payments for purchases = $37,000
[37,000 = ($40,000 .5) + ($34,000 .5)]
D.
Anticipated cash balance on June 30 = $18,410
[18,410 = $84,900 − $37,000 − 28,400 − 1,090]
20. Calino Company developed the following data for the month of August.
1.
August 1 cash balance $12,300.
2.
Cash sales in August $80,000.
3.
Credit sales for August are $30,000; for July $40,000; and for June $40,000. 70% of credit
sales are collected in the month of sale, 15% in the following month, and 10% in the
second month following the sale.
4.
Purchases for July were $50,000 and for August are $40,000. One-fourth of purchases are
paid in the month of purchase and the remaining three-quarters in the following month.
5.
August salaries are $31,400, utilities are $3,220, and depreciation on the building and
equipment is $10,000.
A.
Anticipated cash receipts from accounts receivable in August are
$__________________.
B.
Anticipated total cash available from all sources in August is $__________________.
C.
August cash payments for purchases made in July and August are
$__________________.
D.
Anticipated cash balance on August 31 is $__________________.
A.
August cash receipts from accounts receivable = $31,000
B.
August anticipated total cash available from all sources = $123,300
August cash payments for purchases = $47,500
D.
Anticipated cash balance on August 31 = $41,180
21. It is May 28 and you have just gotten a summer job that will pay you (net of taxes) $800 per month.
You start June 1 and will work until school starts − halfway through August. Your scholarship pays for
tuition, room and board. But you must buy books, pay for transportation to and from school, and pay
for clothing, any extra meals, entertainment, and so on. You have gathered the following data:
1.
One round trip airline ticket is $260, and you’d like to come home for Thanksgiving (your
parents will drive you there in August, and you will try to catch a ride home with another
student in December).
2.
Books are estimated to cost about $500 per semester for your anticipated major
3.
Supplies should be another $150
4.
Clothing might run $100 − you already have almost everything you think you’ll need.
5.
There are 16 weeks in the semester, and you think you’ll need $50 per week for allowance
to cover extra meals and entertainment
6.
Before school even starts, you need to cover any summer expenses, including going out
with friends. $30 a week sounds about right, since all your friends will be working and
saving for college as well. There are 11 weeks of summer.
Right now, you have $200 in your checking account.
A.
Prepare a cash budget for the summer and the first semester of college. (Do the entire
time period; do not break it down by week or by month.)
B.
Comment on the estimated ending balance. What actions can you take, if any, to
increase it?
22. Miller Corporation has the following sales budget for the first four months of the current year:
Month
Sales
January
$400,000
February
$320,000
March
$440,000
April
$360,000
Historically, the following trend has been established regarding cash collection of sales:
65% in month of sale
25% in month following sale
8% in second month following sale
2% uncollectible
The company allows a 2% cash discount for payments made by customers during the month of the
sale. November and December sales were $400,000 and $240,000, respectively. All sales are on
account.
Required: Prepare a schedule of budgeted cash collections from sales for January, February, and
March.
23.
Allan Corporation has a sales budget for March of $440,000. About 10% are cash sales
and the remainder is sold on account.
The company expects that 60% of credit sales will be collected in the month of the sale,
25% in the next month and 10% in the following month.
Materials purchased on account are expected to be $250,000. Allan pays 35% in the
month of the purchase, 50% in the month following the purchase and the remaining 15%
in the second month after the purchase.
Salaries and wages of the workers are approximately $45,000 per month. The
employees are paid weekly so on average 95% of their wages are paid in the month to
which they relate and the remaining 5% is paid in the following month.
Utilities average $4,300 per month.
Rent on the building is $9,000 per month.
Insurance is $3,000 per month and advertising costs are $1,000 per month.
February sales were $320,000 and purchases of materials in February were $170,000;
January sales were $200,000 and purchases of materials in January were $130,000.
The cash balance on March 1st is $5,400.
November
($400,000)
December
($240,000)
January
($400,000)
February
($320,000)
March
($440,000)
Total cash collections
Required:
A.
Prepare a schedule of cash receipts
B.
Prepare a schedule of cash payments (Accounts payable payments)
C.
Prepare a cash budget
24. Trish Morrow owns and operates Yummy Bakery which sells a wide variety of cupcakes. She has
compiled the following data and information in order to put together a cash budget for September and
October.
• Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells
for $3.50.
• On average 60% are cash sales and 40% are done on account.
• The company expects to collect 75% of credit sales in the month of the sale and 20% in the
month after the sale.
• All necessary raw materials are purchased on account. Purchases are paid 85% in the month
of the purchase and 15% in the following month. Purchases for September are estimated to
be $200,000 and $290,000 in October.
• Monthly expenses include:
o Wages $10,000
o Rent $4,000
o Utilities $3,500
o Insurance $2,500
o Advertising $2,290
• Cash balance on September 1st was $6,000.
• The company has a policy to maintain a minimum cash balance of $5,000. If necessary the
company will borrow to meet its short-term needs. All borrowing is done at the beginning of
the month and all payments on principal and interest are made at the end of the next month.
The annual interest rate is 7%. The company must borrow in multiples of $1,000.
• August sales were 43,000 cupcakes and raw materials purchased equal $230,000.
Prepare a cash budget for September and October.
25. Dickson Company has the following projected account balances for September 30 of the current year:
Accounts payable
$20,000
Sales
$400,000
Accounts receivable
50,000
Capital stock
200,000
Depreciation, factory
12,000
Retained earnings (beginning)
64,000
Inventories (8/31)
90,000
Maintenance, factory
14,000
Inventories (9/30)
90,000
Cash
28,000
Materials used
100,000
Equipment, net
120,000
Office salaries
40,000
Buildings, net
200,000
Insurance, factory
2,000
Utilities, factory
8,000
Factory wages
70,000
Selling expenses
30,000
Bonds payable
80,000
Required:
A.
Prepare a budgeted income statement for the month ended September 30.
B.
Prepare a budgeted balance sheet as of September 30.
Sales
Cost of goods sold:
Beginning inventory
100,000
Factory wages
70,000
Depreciation
12,000
Insurance
2,000
Maintenance
14,000
Utilities
Gross margin
Operating expenses:
ESSAY
1. What are the advantages of budgeting?
2. Which budget is the first one that must be completed in the master budgeting process and why?
3. You are the senior accountant at Cannon Manufacturing and have been asked by the budget director to
prepare the production budget for the upcoming quarter. The budget director stated that they chose
you to prepare this budget because it is an important part of the overall operating budget and financial
budget. Explain what the production budget calculates and how the production budget would affect
other operating budgets and the financial budget.
4. Does a not-for-profit agency need to budget? Why or why not?
5. Briefly describe the attributes of an ideal budgetary system. What features of budgeting have been
identified that encourage positive behavior?
6. Describe some problems with participative budgeting.