Problem 20-6B (50 minutes)
SONY STEREO
Cash Budgets
For April, May, and June
April
May
June
Beginning balance ……………………………………
$ 3,000
$ 53,000
$ 44,000
Cash receipts
Collection on accounts receivable* …………
136,000
210,000
290,200
Receipts from bank loan …………………………
80,000
_______
_______
Total cash available ……………………………….…
219,000
263,000
334,200
Cash disbursements
Payments on accounts payable** ……………
80,000
188,000
186,000
Payroll ……………………………………………………
16,000
17,000
18,000
Rent …………………………………………………….…
6,000
6,000
6,000
Other expenses ………………………………………
64,000
8,000
7,000
Repayment on bank loan ……………………..…
80,000
Interest on bank loan* …………………………..
________
________
2,400
Total cash disbursements…………………….…
166,000
219,000
299,400
Ending cash balance ……………………………..…
$ 53,000
$ 44,000
$ 34,800
Problem 20-7B (70 minutes)
Part 1
Cash collections of credit sales (accounts receivable)
From sales in
Total
% Collected
March
April
January …………………………….…
$396,000
23%
$ 91,080
February ………………………………
495,000
35
173,250
…………………………..
23
$113,850
March …………………………..…..…
418,000
40
167,200
………………………………..…
35
146,300
April ………………………………….…
412,500
40
_______
165,000
Total collected …………………..…
$431,530
$425,150
Part 2
Budgeted ending inventories (in units)
January
February
March
April
Next month’s budgeted sales …………….…..
22,500
19,000
18,750
21,000
Ratio of inventory to future sales ……….…..
20%
20%
20%
20%
Budgeted “base” ending inventory ………..
4,500
3,800
3,750
4,200
Plus safety stock ……………………………….…..
100
100
100
100
Budgeted ending inventory ……………….…..
4,600
3,900
3,850
4,300
Part 3
CONNICK COMPANY
Merchandise Purchases Budgets
For February, March, and April
February
March
April
Budgeted ending inventory (from part 2) …………
3,900
3,850
4,300
Add budgeted sales ……………………………………
22,500
19,000
18,750
Required units of available merchandise ….…
26,400
22,850
23,050
Deduct beginning inventory …………………….…
(4,600)
(3,900)
(3,850)
Budgeted purchases (units) …………………….…
21,800
18,950
19,200
Budgeted cost per unit …………………………….…
$12
$12
$12
Budgeted cost of merchandise purchases…..…
$261,600
$227,400
$230,400
Problem 20-7B (Continued)
Part 4
Cash payments on product purchases (for March and April)
From purchases in
Total
% Paid
March
April
February ……………………………..….
$261,600
70%
$183,120
March …………………………..…….….
227,400
30
68,220
………………………………….….
70
$159,180
April ……………………………………….
230,400
30
_______
69,120
Total paid ……………………………….
$251,340
$228,300
Part 5
CONNICK COMPANY
Cash Budget
March and April
March
April
Beginning cash balance ………………………………………..………..
$ 50,000
$ 58,070
Cash receipts from customers ………………………………………..
431,530
425,150
Total available cash ……………………………………………………….
481,530
483,220
Cash disbursements
Payments on purchases ……………………………………..………..
251,340
228,300
Selling and administrative expenses …………………………..
160,000
160,000
Interest expense* ………………………………………………..……..
120
0
Total disbursements …………………………………………..………..
411,460
388,300
Preliminary cash balance ………………………………………………..
$ 70,070
$ 94,920
Additional loan ……………………………………………………....
Repayment of loan ………………………………………………..……..
(12,000)
________
Ending cash balance …………………………………………….………..
$ 58,070
$ 94,920
Ending loan balance ……………………………………………..………..
$ 0
$ 0
*Interest expense: March = $12,000 x 12% /12 = $120
Part 6
Analysis Component: Information about the supply of cash in the near future
would be helpful to the management of Connick Company. A good cash
Problem 20-8B (130 minutes)
Part 1
ISLE CORPORATION
Sales Budgets
January, February, and March 2016
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
January 2016 …………………………………………….…
6,000
$45
$ 270,000
February 2016 …………………………..……………….…
8,000
45
360,000
March 2016 ……………………………………………….…
10,000
45
450,000
Total for the first quarter ………………………………
24,000
$1,080,000
Part 2
ISLE CORPORATION
Merchandise Purchases Budgets
January, February, and March 2016
January
February
March
Total
Next month’s budgeted sales …………...
8,000
10,000
9,000
Ratio of inventory to future sales ……...
x 25%
x 25%
x 25%
Budgeted ending inventory ……………...
2,000
2,500
2,250
Add budgeted sales ………………………….
6,000
8,000
10,000
Required available merchandise ……….
8,000
10,500
12,250
Deduct beginning inventory ……………..
(5,000)
(2,000)
(2,500)
Units to be purchased ……………………...
3,000
8,500
9,750
21,250
Budgeted cost per unit ……………………..
$ 30
$ 30
$ 30
$ 30
Budgeted merchandise purchases …...
$90,000
$255,000
$292,500
$637,500
Part 3
ISLE CORPORATION
Selling Expense Budgets
January, February, and March 2016
January
February
March
Total
Budgeted sales …………………………..
$270,000
$360,000
$450,000
Sales commission percent ………….……
x 20%
x 20%
x 20%
Sales commissions expense ……………
54,000
72,000
90,000
$216,000
Sales salaries ……………………………..……
7,500
7,500
7,500
22,500
Total selling expenses ………………..……
$ 61,500
$ 79,500
$ 97,500
$238,500
Problem 20-8B (Continued)
Part 4
ISLE CORPORATION
General and Administrative Expense Budgets
January, February, and March 2016
January
February
March
Total
Salaries ………………………………………..……..
$12,000
$12,000
$12,000
$36,000
Maintenance ………………………………………..
3,000
3,000
3,000
9,000
Depreciation* ………………………………..……..
6,375
7,375
7,675
21,425
Total expenses ……………………………..……..
$21,375
$22,375
$22,675
$66,425
* Depreciation expense calculations
Annual
Amount
January
February
March
Total
Equipment owned
on 12/31/2015 ………………..
$67,500
$5,625
$5,625
$5,625
$16,875
Purchased in January………
9,000
750
750
750
2,250
Purchased in February …….
12,000
1,000
1,000
2,000
Purchased in March …………
3,600
______
______
300
300
Total ……………………………….
$6,375
$7,375
$7,675
$21,425
Part 5
ISLE CORPORATION
Capital Expenditures Budgets
January, February, and March 2016
January
February
March
Equipment purchases ……………………………..……
$72,000
$96,000
$ 28,800
Land purchase ………………………………………..……
_______
_______
150,000
Total ……………………………………………………….
$72,000
$96,000
$178,800
Problem 20-8B (Continued)
Part 6
ISLE CORPORATION
Cash Budgets
January, February, and March 2016
January
February
March
Beginning cash balance …………………………….….
$ 36,000
$182,850
$ 107,850
Cash receipts from customers (note A) …………….
382,500
421,500
355,500
Total cash available …………………………………..….
418,500
604,350
463,350
Cash disbursements
Payments for merchandise (note B) ……………….
72,000
306,000
123,000
Sales commissions …………………………..…….….
54,000
72,000
90,000
Sales salaries ………………………………………….….
7,500
7,500
7,500
General & administrative salaries …………….….
12,000
12,000
12,000
Maintenance expense ……………………………..….
3,000
3,000
3,000
Interest ($15,000 x 1%) ………………………………….….
150
Taxes payable …………………………………………….
90,000
Purchases of equipment …………………………..
72,000
96,000
28,800
Purchase of land ……………………………………..….
________
________
150,000
Total cash disbursements…………………………..
220,650
496,500
504,300
Preliminary cash balance …………………………..
$197,850
$107,850
$ (40,950)
Repayment of loan to bank ………………………..…
(15,000)
Additional loan from bank…………………………..
________
________
76,950
Ending cash balance …………………………………….
$182,850
$107,850
$ 36,000
Loan balance, end of month ………………………….
$ 0
$ 0
$ 76,950
Supporting calculations
January
February
March
Total
Note A: Cash receipts from customers
Total sales …………………………..………………….
$270,000
$360,000
$450,000
$1,080,000
Cash sales (25%) …………………………………….
$ 67,500
$ 90,000
$112,500
$ 270,000
Credit sales (75%) …………………………..……….
$202,500
$270,000
$337,500
$ 810,000
Cash collections
Receivables at 12/31/2015 (60%; 40%) ……….
$315,000
$210,000
$ 525,000
January credit sales (60%; 40%) ……………….
121,500
$ 81,000
202,500
February credit sales (60%; 40%)………………
_______
_______
162,000
162,000
Total from credit customers ……………………..
$315,000
331,500
243,000
889,500
Cash sales ………………………………………………
67,500
90,000
112,500
270,000
Total cash received …………………………..……..
$382,500
$421,500
$355,500
$1,159,500
Credit purchases …………………………………….
$90,000
$255,000
$292,500
$637,500
Accounts payable at 12/31/2015 (20%; 80%)
$72,000
$288,000
$360,000
January purchases (20%; 80%) …………………
18,000
$72,000
90,000
February purchases (20%) ……………………….
_______
_______
51,000
51,000
Total paid on purchases …………………………..
$72,000
$306,000
$123,000
$501,000
Problem 20-8B (Continued)
Part 7
ISLE CORPORATION
Budgeted Income Statement
For Three Months Ended March 31, 2016
Sales ……………………………………………………………………..
$1,080,000
Cost of goods sold (24,000 units @ $30) ………………...
720,000
Gross profit …………………………………………………………..
360,000
Operating expenses
Sales commissions …………………………..………………...
$216,000
Sales salaries ……………………………………………………...
22,500
General administrative salaries …………………………..
36,000
Maintenance expense ………………………………………….
9,000
Depreciation expense ………………………………………….
21,425
Interest expense ………………………………………………….
150
305,075
Income before taxes ……………………………………………...
54,925
Income taxes (40%)………………………………………………..
21,970
Net income …………………………..………………………………..
$ 32,955
Part 8
ISLE CORPORATION
Budgeted Balance Sheet
March 31, 2016
ASSETS
Cash ……………………………………………………
$ 36,000
Cash budget
Accounts receivable …………………………..
445,500
Note C
Inventory …………………………………………..…
67,500
Note D
Total current assets …………………………..
549,000
Equipment …………………………..………………
$736,800
Note E
Less accumulated depreciation ……………
88,925
647,875
Note F
Land ……………………………………………………
150,000
Capital budget
Total assets …………………………………………
$1,346,875
LIABILITIES AND EQUITY
Accounts payable ……………………………..…
$ 496,500
Note G
Bank loan payable …………………………….…
76,950
Cash budget
Taxes payable (due 4/15/2016) …………..…
21,970
Income stmt.
Total liabilities …………………………………..…
595,420
Common stock ………………………………….…
$472,500
Unchanged
Retained earnings ……………………………..…
278,955
Note H
Total stockholders’ equity ……………………
751,455
Total liabilities and equity ………………….…
$1,346,875
Problem 20-8B (Concluded)
Supporting Footnotes
Note C
Beginning receivables ……………………………………………………….
$ 525,000
Credit sales ………………………………………………………………………..
810,000
Less collections …………………………………………………………….…..
(889,500)
Ending receivables ……………………………………………………………..
$ 445,500
Note D
Beginning inventory ……………………………………………………….
$ 150,000
Purchases ……………………………………………………………………..…..
637,500
Less cost of goods sold ……………………………………………………..
(720,000)
Ending inventory* …………………………………………………………..…..
$ 67,500
*Also equals 2,250 units @ $30 = $67,500
Note E
Beginning equipment …………………………..…………………………..
$ 540,000
Purchased in January …………………………………………………….…
72,000
Purchased in February……………………………………………………….
96,000
Purchased in March ……………………………………………………….
28,800
Total ……………………………………………………………………………..…..
$ 736,800
Note F
Beginning accumulated depreciation …………………………………..
$ 67,500
Depreciation expense …………………………………………………….…
21,425
Total ……………………………………………………………………………..…..
$ 88,925
Note G
Beginning accounts payable …………………………………………..…..
$ 360,000
Purchases ……………………………………………………………………..…..
637,500
Payments …………………………………………………………………………..
(501,000)
Ending accounts payable ……………………………………………….…..
$ 496,500
Note H
Beginning retained earnings …………………………………………..…..
$ 246,000
Net income …………………………..………………………………………..…..
32,955
Total ……………………………………………………………………………..…..
$ 278,955