a.
Schedule of Cash Payments for S&A Expenses
July
August
September
Salary expense
$24,000
$24,000
$24,000
Prior month’s sales commissions, 100%
0
2,000
2,000
Supplies expense
360
390
420
Prior month’s utilities, 100%
0
1,100
1,100
Rent
6,600
6,600
6,600
Miscellaneous
690
690
690
Total payments for S&A expenses
$31,650
$34,780
$34,810
Depreciation is a noncash charge.
b. Since utilities are paid in the month following the month they are incurred, the
c. Since sales commissions are paid in the month following the month they are incurred,
Problem 14-20
Cash Budget
February
March
Beginning cash balance
$ 5,600
$ 5,000
Add cash receipts
116,000
136,000
Cash available (a)
121,600
141,000
Less cash payments
For inventory purchases
82,000
95,000
For S&A expenses
32,000
27,000
Interest exp at 1% per month
5902
5703
Total budgeted payments (b)
114,590
122,570
Payments minus receipts
Surplus (Shortage) (a – b)
7,010
18,430
Financing Activity
Borrowing (repayment) (c)
(2,010)
(13,430)
Ending cash balance (a – b + c)
$ 5,000
$ 5,000
1($40,000) x 1% = $400
2($40,000 + $19,000) x 1% = $590
3($40,000 + $19,000 – $2,010) x 1% = $570 (rounded).
Problem 14-21
This is a typical problem for what-if analysis. Students can use a computerized
spreadsheet to try different possible scenarios.
a.
The budgeted net income for the next year: $580,000×115%= $667,000
Assume x = Desired sales
Alternatively, you can use the contribution margin ratio to determine sales.
Pro Forma Income Statement
Sales revenue
$3,635,000
Cost of goods sold
2,544,500
Gross profit
1,090,500
Selling & admin. expenses
423,500*
Net income
$ 667,000
*($3,635,000 x 10% + $60,000) = $423,500
% increase required: ($3,635,000 – $3,200,000) ÷ $3,200,000 = 13.59% (rounded)
Problem 14-21 (continued)
b.
The budgeted level of selling and administrative expenses:
Pro Forma Income Statement
Sales revenue
$3,200,000
Cost of goods sold
2,195,200
Gross profit
1,004,800
Selling & admin. expenses
337,800*
Net income
$ 667,000
*The figure means that management has to cut the selling and administrative expenses by
c.
Projected sales revenue to increase by 15%:
Pro Forma Income Statement
Sales revenue
$3,680,000
Cost of goods sold
2,576,000
Gross profit
1,104,000
Selling & admin. expenses
460,000
Net income
$ 644,000
Since the projected net income under the given scenario will be only $644,000, which is short
of the original $667,000, the company cannot reach its goal.
Problem 14-22
a.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
Peaches
$168,000
$210,000
$336,000
$294,000
$1,008,000
Oranges
440,000
495,000
627,000
418,000
1,980,000
Total
$608,000
$705,000
$963,000
$712,000
$2,988,000
b. Budgeted cost of goods sold: $2,988,000 x 60% = $1,792,800
Budgeted Annual Income Statement
Sales revenue
$2,988,000
Cost of goods sold
1,792,800
Gross profit
1,195,200
Selling & admin. expenses
700,000
Net income
$ 495,200
c. Inventory purchases budget for peaches
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Sales
$168,000
$210,000
$336,000
$294,000
Cost of goods sold
$100,800
$126,000
$201,600
$176,400
Plus: desired ending inventory
12,600
20,160
17,640
20,000
Inventory needed
113,400
146,160
219,240
196,400
Less: beginning inventory
10,080
12,600
20,160
17,640
Required purchases
$103,320
$133,560
$199,080
$178,760
Inventory purchases budget for oranges
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Sales
$440,000
$495,000
$627,000
$418,000
Cost of goods sold
$264,000
$297,000
$376,200
$250,800
Plus: desired ending inventory
29,700
37,620
25,080
40,000
Inventory needed
293,700
334,620
401,280
290,800
Less: beginning inventory
26,400
29,700
37,620
25,080
Required purchases
$267,300
$304,920
$363,660
$265,720
Problem 14-23
(Note: All computations are rounded to the nearest whole dollar.)
a. & b.
Sales Budget
Pro Forma
Oct.
Nov.
Dec.
Data
Cash sales
$100,000
$108,000
$116,640
Sales on account
150,000
162,000
174,960
$174,960(a)
Total budgeted sales
$250,000
$270,000
$291,600
811,600(b)
Schedule of Cash Receipts
Oct.
Nov.
Dec.
Current cash sales
$100,000
$108,000
$116,640
Plus collections from A/R
0
150,000
162,000
Total collections
$100,000
$258,000
$278,640
$636,640 (c)
(a) Ending accounts receivable balance appearing on balance sheet.
(b) Sales revenue appearing on income statement (sum of monthly amounts).
(c) Cash receipts from customers on statement of cash flows (sum of monthly amounts).
c. and d.
Inventory Purchases Budget
Pro Forma
Oct.
Nov.
Dec.
Data
Budgeted cost of goods sold
$150,000
$162,000
$174,960
$486,960(a)
Plus: Desired ending inventory
16,200
17,496
12,000
12,000(b)
Inventory needed
166,200
179,496
186,960
Less: Beginning inventory
0
16,200
17,496
Required purchases (on account)
$166,200
$163,296
$169,464
50,839(c)
Schedule of Cash Payments Budget for Inventory Purchases
Pmt. of current month’s accts. pay.
$116,340
$114,307*
$118,625*
Pmt. for prior month’s accts. pay.
0
49,860
48,989*
Total budgeted pmts. for inventory
$116,340
$164,167
$167,614
$448,121(d)
(a) Cost of goods sold appearing on pro forma income statement (sum of monthly amounts).
(b) Ending inventory balance appearing on pro forma balance sheet.
(c) Ending accounts payable balance appearing on pro forma balance sheet ($169,464 –
$118,625).
(d) Cash payments for inventory purchases (sum of monthly amounts).
*Rounded
Problem 14-23 (continued)
e. and f.
Selling and Administrative Expense Budget
Pro Forma
Oct.
Nov.
Dec.
Data
Salary expense
$18,000
$18,000
$18,000
Sales commissions, 5% of sales
12,500
13,500
14,580
$14,580(a)
Supplies expense, 2% of sales
5,000
5,400
5,832
Utilities
1,400
1,400
1,400
1,400(b)
Depreciation on store fixtures
4,000
4,000
4,000
12,000(c)
Rent
4,800
4,800
4,800
Miscellaneous
1,200
1,200
1,200
Total S&A expenses
$46,900
$48,300
$49,812
145,012(d)
Schedule of Cash Payments for S&A Expenses
Salary expense
$18,000
$18,000
$18,000
Prior month’s sales comm., 100%
0
12,500
13,500
Supplies expense
5,000
5,400
5,832
Prior month’s utilities, 100%
0
1,400
1,400
Depreciation on store fixtures
0
0
0
Rent
4,800
4,800
4,800
Miscellaneous
1,200
1,200
1,200
Total payments for S&A expenses
$29,000
$43,300
$44,732
$117,032 (e)
Depreciation is a noncash charge.
(a) Ending sales commissions payable account balance shown on pro forma balance sheet.
(b) Ending utilities payable account balance shown on pro forma balance sheet.
(c) Accumulated depreciation appears on the pro forma balance sheet (sum of monthly
amounts).
(d) S&A expense appearing on pro forma income statement (sum of monthly amounts).
(e) Total cash payments for S&A expenses on pro forma statement of cash flows (sum of
monthly amounts).
Problem 14-23 (continued)
g.
Cash Budget
Pro Forma
Oct.
Nov.
Dec.
Data
Beginning cash balance
$ 0
$ 12,660
$ 12,000
Add cash receipts
100,000
258,000
278,640
$636,640(a)
Cash available (w)
100,000
270,660
290,640
Less payments
For inventory purchases
116,340
164,167
167,614
$448,121(b)
For S&A expenses
29,000
43,300
44,732
117,032(c)
Purchase of store fixtures
164,000
0
0
164,000(d)
Interest expense*
0
2,220
1,730*
3,950 (f)
Total budgeted payments (x)
309,340
209,687
214,076
Payments minus receipts
Surplus (shortage) (w – x)
(209,340)
60,973
76,564
Financing activity
Borrowing (repayment) (y)
222,000
(48,973)
(64,564)
108,463(e)
Ending cash balance (w – x+ y)
$ 12,660
$ 12,000
$ 12,000
12,000(g)
*October ($0 x 0.01); November ( $222,000 x 0.01); December [( $222,000 – $48,973) x 0.01]
(a) Operating activities section of pro forma Statement of Cash Flows (sum of monthly amounts).
(b) Operating activities section of pro forma Statement of Cash Flows (sum of monthly amounts).
(c) Operating activities section of pro forma Statement of Cash Flows (sum of monthly amounts).
(d) Investing activities section of pro forma Statement of Cash Flows. The investment in store
fixtures also appears on the pro forma balance sheet.
(e) Financing activities section of pro forma Statement of Cash Flows (sum of monthly amounts).
(f) Operating activities section of pro forma Statement of Cash Flows (sum of monthly amounts).
(g) The ending cash balance appears on the pro forma balance sheet and as the last item on the pro
forma statement of cash flows.
Problem 14-23 (continued)
h.
Haas Company
Pro Forma Income Statement
For the Quarter Ended December 31, 2015
Sales revenue
$811,600
Cost of goods sold
(486,960)
Gross margin
324,640
S&A expenses
(145,012)
Operating income
179,628
Interest expense
(3,950)
Net income
$175,678
i.
Haas Company
Pro Forma Balance Sheet
December 31, 2015
Assets
Cash
$ 12,000
Accounts receivable
174,960
Inventory
12,000
Store fixtures
$164,000
Accumulated depreciation
(12,000)
Book value of fixtures
152,000
Total assets
$350,960
Liabilities
Accounts payable
$ 50,839
Utilities payable
1,400
Sales commissions payable
14,580
Line of credit liability
108,463
Equity
Retained earnings
175,678
Total liabilities and equity
$350,960
Problem 14-23 (continued)
j.
Haas Company
Pro Forma Statement of Cash Flows
For the Quarter Ended December 31, 2015
Cash flows from operating activities
Cash receipts from customers
$ 636,640
Cash payments for inventory
(448,121)
Cash payments for S&A expenses
(117,032)
Cash payments for interest expense
(3,950)
Net cash flows from operating activities
$ 67,537
Cash flows from investing activities
Cash payment for store fixtures
(164,000)
Cash flow from financing activities
Net Inflow from line of credit
108,463
Net increase in cash
12,000
Plus: Beginning cash balance
0
Ending cash balance
$ 12,000