Exercise 20-22 (30 minutes)
Mike’s Motors Corp.
Cash Budget
For July, August, and September
July
August
September
Beginning cash balance
$34,000
$30,000
$30,000
Cash receipts
85,000
111,000
150,000
Total cash available
119,000
141,000
180,000
Cash disbursements
(113,000)
(99,900)
(127,400)
Interest expense (2% per month)
0
(480)
(268)
Preliminary cash balance
6,000
40,620
52,332
Additional loan (loan repayment)
24,000
(10,620)
(13,380)
Ending cash balance
$30,000
$30,000
$38,952
Loan balance
Loan balance, Beg. of month
$0
$24,000
$13,380
Additional loan (loan repayment)
24,000
(10,620)
(13,380)
Loan balance, Month-end
$24,000
$13,380
$0
Exercise 20-23 (30 minutes)
1. Merchandise Purchases Budget
Note: Shaded numbers represent known information provided in the exercise.
Walker Company
Merchandise Purchases Budget
For July, August, and September
July
August
September
Next month’s budgeted sales …………..
315,000
270,000
200,000
(10)
Ratio of inventory to next month sales .
x 15%
(9)
x 15%
(9)
x 15%
(9)
Budgeted ending inventory ……………..
47,250
(6)
40,500
(3)
30,000
Add budgeted sales for month …………
180,000
315,000
270,000
Required units available inventory …..
227,250
(7)
355,500
(4)
300,000
(1)
Less beginning inventory ………………..
27,000
(8)
47,250
(5)
40,500
(2)
Budgeted merchandise purchases …..
200,250
308,250
259,500
Exercise 20-23 (concluded)
Notes: concluded
(5) August beginning inventory
Total required (4 above)
355,500
Less budgeted purchases
(308,250)
August beginning inventory
47,250
(6) August Beginning Inventory = July Ending Inventory
(7) July required units
Ending inventory
47,250
Add budgeted sales
180,000
Total required in July
227,250
(8) July Beginning Inventory
Total required (7 above)
227,250
Less budgeted purchases
(200,250)
July beginning inventory
27,000
(9) Percent of Sales to be held as Ending Inventory
Ending inventory for August
September Sales
= 40,500 = 15%
270,000
This percentage is constant for the three months.
(10) October expected sales
September Ending Inventory
Required %
= 30,000 = 200,000
15%
2. Monthly ending inventory is 15% of next month’s sales (see note #9).
3. October budgeted sales = 200,000 (see note #10 above).
Exercise 20–24 (25 minutes)
ACCO COMPANY
Cash Budget
For Month Ended July 31
Beginning cash balance ……………………………………..….
$ 50,000
Cash receipts from sales (note 1) …………………………..
1,364,000
Total cash available ……………………………………………….
$1,414,000
Cash disbursements
Payments for merchandise (note 2) …………………….….
730,000
Salaries ……………………………………………………………….
275,000
Other expenses ………………………………………………..….
200,000
Accrued taxes ………………………………………………….….
80,000
Interest on bank loan ……………………………………….….
6,600
Total cash disbursements…………………………..………….
1,291,600
Ending cash balance ………………………………………….….
$ 122,400
Supporting calculations
(1) Cash receipts in July from sales
From May sales ($1,720,000 x 20%) …………..
$ 344,000
From June sales ($1,200,000 x 50%) ………….
600,000
From July sales ($1,400,000 x 30%) …………..
420,000
Total …………………………..…………………………...
$1,364,000
(2) Cash disbursements in July for merchandise
For June purchases ($700,000 x 40%) ……….
$ 280,000
For July purchases ($750,000 x 60%) ………..
450,000
Total …………………………..…………………………...
$ 730,000
Exercise 20–25 (45 minutes)
ACCO COMPANY
Budgeted Income Statement
For Month Ended July 31
Sales (from Exercise 20–24) ………………………………………....
$1,400,000
Cost of goods sold (note 1) ……………………………………...
770,000
Gross profit …………………………………………………………...
630,000
Operating expenses
Salaries expense (note 2) ……………………………………....
$285,000
Depreciation expense (from Exercise 20–24) ……………....
36,000
Other cash expenses (from Exercise 20–24) ………………..
200,000
Bank loan interest expense …………………………………..
6,600
Total expenses ……………………………………………………....
527,600
Income before taxes ……………………………………………....
102,400
Income tax expense (note 3) ……………………………………..
30,720
Net income ……………………………………………………………..
$ 71,680
Supporting calculations
(1) Cost of goods sold
Sales ……………………………………………………....
$1,400,000
Cost percent …………………………………………....
55%
Cost of goods sold …………………………………..
$ 770,000
(2) Salaries expense
Cash paid ………………………………………………...
$ 275,000
Less beginning payable …………………………..
(50,000)
Plus ending payable ………………………………...
60,000
Salaries expense ……………………………………...
$ 285,000
(3) Income tax expense
Pre-tax income ………………………………………...
$ 102,400
Tax rate …………………………………………………...
30%
Income tax expense ………………………………....
$ 30,720
Exercise 20–25 (Continued)
ACCO COMPANY
Budgeted Balance Sheet
As of July 31
ASSETS
Cash (from Exercise 20–24) ……………………………………..….
$ 122,400
Accounts receivable (note 1) ………………………………..….
1,220,000
Inventory (given) ………………………………………………….….
60,000
Total current assets ……………………………………………….
1,402,400
Equipment …………………………..…………………………….….
$1,600,000
Less accumulated depreciation (note 2) ……………….….
316,000
1,284,000
Total assets …………………………..…………………………..
$2,686,400
LIABILITIES AND EQUITY
Liabilities
Accounts payable (note 3) ………………………………….….
$ 300,000
Salaries payable ………………………………………………….
60,000
Income taxes payable ………………………………………….
30,720
Total current liabilities ……………………………………..….
390,720
Bank loan payable ……………………………………………….
660,000
1,050,720
Stockholders’ equity
Common stock …………………………..…………………….….
600,000
Retained earnings (note 4) …………………………………….
1,035,680
1,635,680
Total liabilities and equity …………………………………..….
$2,686,400
Supporting calculations
(1) Accounts receivable
June sales (20% x $1,200,000) ……….………………….
$ 240,000
July sales (70% x $1,400,000) …………………………..
980,000
Total ……………………………………………………….
$ 1,220,000
(2) Accumulated depreciation
Beginning ……………………………………………………….
$ 280,000
Expense ……………………………………………………….
36,000
Ending……………………………………………………….
$ 316,000
(3) Accounts payable
Purchases ……………………………………………………….
$ 750,000
Percent unpaid …………………………....……………………
40%
Payable ……………………………………….………………
$ 300,000
(4) Retained earnings
Beginning ……………………………………………………….
$ 964,000
Net income…………………………………..…………………..
71,680
Ending……………………………………………………….
$1,035,680
Exercise 20–26 (30 minutes)
Preliminary calculations (sales, cost of sales, beginning and ending inventory)
August
September
October
November
Sales……………………………………………………
$325,000
$ 320,000
$250,000
$310,000
Cost to sales percent …………………………..
x 60%
x 60%
x 60%
x 60%
Cost of goods sold …………………………….…
195,000
192,000
150,000
186,000
Beginning inventory percent …………………
x 20%
x 20%
x 20%
x 20%
Beginning inventory …………………………..
$ 39,000
$ 38,400
$ 30,000
$ 37,200
Ending inventory (from next month) ………
$ 38,400
$ 30,000
$ 37,200
Merchandise purchases budgets (* denotes from preliminary calculations)
August
September
October
Budgeted ending inventory (*) ……………….…..
$ 38,400
$ 30,000
$ 37,200
Add budgeted cost of goods sold (*) ……..…..
195,000
192,000
150,000
Cost of available merchandise…………………..
233,400
222,000
187,200
Less beginning inventory (*) ………………….…..
(39,000)
(38,400)
(30,000)
Budgeted purchases …………………………….…..
$194,400
$183,600
$157,200
Cash payments for purchases (on accounts) in October
Dollars
Percent
Paid
For purchases from August ………………….…..
$194,400
15%
$ 29,160
For purchases from September …………….…..
183,600
35
64,260
For purchases from October ……………………..
157,200
50
78,600
Total cash payments for purchases …………..
$172,020
Exercise 20–27 (25 minutes)
1. Budgeted merchandise purchases
June
July
August
Ending accounts payable……………………..
$ 200,000
$ 235,000
$ 195,000
Cash paid on accounts payable …….……..
1,490,000
1,425,000
1,495,000
Total payable during month …………..……..
1,690,000
1,660,000
1,690,000
Less beginning accounts payable ………..
(150,000)
(200,000)
(235,000)
Purchases during month……………….……..
$1,540,000
$1,460,000
$1,455,000
2. Budgeted cost of goods sold
June
July
August
Beginning inventory ……………………..……
$ 250,000
$ 400,000
$ 300,000
Plus purchases …………………………….……..
1,540,000
1,460,000
1,455,000
Less ending inventory …………………..……..
(400,000)
(300,000)
(330,000)
Cost of goods sold ……………………….….
$1,390,000
$1,560,000
$1,425,000
Exercise 20–28 (40 minutes)
1.
Preliminary calculations (sales, cost of sales, beginning inventory)
July
August
September
October
November
Budgeted sales ………………………….
$350,000
$290,000
$320,000
$275,000
$265,000
Cost to sales percent ……………..….
x 70%
x 70%
x 70%
x 70%
x 70%
Budgeted cost of goods sold ….….
245,000
203,000
224,000
192,500
185,500
Budgeted inventory percent ……….
x 20%
x 20%
x 20%
x 20%
x 20%
Budgeted beginning inventory …..….
$ 49,000
$ 40,600
$ 44,800
$ 38,500
$ 37,100
Budgeted merchandise purchases
July
August
September
October
Budgeted ending inventory ………..……
$ 40,600
$ 44,800
$ 38,500
$ 37,100
Budgeted cost of goods sold ……..……
245,000
203,000
224,000
192,500
Cost of available merchandise …………
285,600
247,800
262,500
229,600
Less beginning inventory …………..……
(49,000)
(40,600)
(44,800)
(38,500)
Budgeted purchases ………………….……
$236,600
$207,200
$217,700
$191,100
2.
Budgeted payments on accounts payable in September
Purchases
Percent Paid
Dollars Paid
For purchases from September………..
$217,700
25%
$ 54,425
For purchases from August ……………..
207,200
60
124,320
For purchases from July ………………….
236,600
15
35,490
Total payments ……………………………….
$214,235
Budgeted payments on accounts payable in October
Purchases
Percent Paid
Dollars Paid
For purchases from October ……………
$191,100
25%
$ 47,775
For purchases from September………..
217,700
60
130,620
For purchases from August ……………..
207,200
15
31,080
Total payments ……………………………….
$209,475
3.
Budgeted balance of accounts payable at the end of September
Purchases
Percent Unpaid
Dollars Unpaid
From purchases in September ………...
$217,700
75%
$163,275
From purchases in August ……………...
207,200
15
31,080
Total …………………………..…………………..
$194,355
Budgeted balance of accounts payable at the end of October
Purchases
Percent Unpaid
Dollars Unpaid
From purchases in October ……………..
$191,100
75%
$143,325
From purchases in September ………...
217,700
15
32,655
Total …………………………..…………………..
$175,980
Exercise 20–29 (10 minutes)
HECTOR COMPANY
Budgeted Cash Disbursements
For August and September
August
Sept.
Payments for merchandise*……………………………………….……
$14,400
$19,200
Selling expenses (10% of sales) ………………………………………
7,200
6,600
Administrative expenses (8% of sales) …………………………..
5,760
5,280
Rent expense ……………………………………………………….…………
7,400
7,400
Total cash disbursements…………………………..……………..……
$34,760
$38,480
**Equals prior month’s purchases. Note that depreciation expense is excluded since it is
a non-cash expense.
Exercise 20–30 (25 minutes)
CASTOR, INC.
Cash Budget
For April, May, and June
April
May
June
Beginning cash balance* …………………….…
$12,000
$12,000
$12,279
Cash receipts** ………………………………………
28,000
36,000
32,000
Total cash available ………………………………
40,000
48,000
44,279
Cash disbursements
Payments for merchandise ………………….…
20,200
16,800
17,200
Sales commissions (10% of sales) …………
3,200
4,000
2,400
Shipping (2% of sales)…………………………..
640
800
480
Office salaries …………………………..………..…
Rent ………………………………………………………
Interest on bank loan
April ($2,000 x 1%) …………………………...…
May ($6,060 x 1%) …………………………….…
Preliminary cash balance ………………………
5,000
3,000
20
______
$7,940
5,000
3,000
61
$18,339
5,000
3,000
_______
$16,199
Additional loan from bank………………………
4,060
Repayment of loan to bank ………………….…
_______
6,060
_______
Ending cash balance …………………………..
$12,000
$12,279
$16,199
Loan balance, end of month ………………..…
$ 6,060
$ 0
$ 0
*April’s beginning cash balance includes an outstanding loan payable of $2,000.
**Per cash receipts budget on next page