Problem 7-24B (60 minutes)
1. a. Schedule of expected cash collections:
Year 2 Quarter
First
Second
Third
Fourth
Total
Year 1—Fourth quarter sales:
$250,000 × 50% …………………..
$125,000
$ 125,000
Year 2—First quarter sales:
$350,000 × 48% …………………..
168,000
168,000
$350,000 × 50% …………………..
$175,000
175,000
Year 2—Second quarter sales:
$450,000 × 48% …………………..
216,000
216,000
$450,000 × 50% …………………..
$225,000
225,000
Year 2—Third quarter sales:
$550,000 × 48% …………………..
264,000
264,000
$550,000 × 50% …………………..
$275,000
275,000
Year 2—Fourth quarter sales:
$430,000 × 48% …………………..
206,400
206,400
Total cash collections ………………..
$293,000
$391,000
$489,000
$481,400
$1,654,400
Problem 7-24B (continued)
b. Schedule of budgeted cash disbursements for merchandise purchases:
Year 2 Quarter
First
Second
Third
Fourth
Total
Year 1—Fourth quarter purchases:
$150,000 × 80% …………………..
$120,000
$ 120,000
Year 2—First quarter purchases:
$230,000 × 20% …………………..
46,000
46,000
$230,000 × 80% …………………..
$184,000
184,000
Year 2—Second quarter purchases:
$280,000 × 20% …………………..
56,000
56,000
$280,000 × 80% …………………..
$224,000
224,000
Year 2—Third quarter purchases:
$340,000 × 20% …………………..
68,000
68,000
$340,000 × 80% …………………..
$272,000
272,000
Year 2—Fourth quarter purchases:
$210,000 × 20% …………………..
42,000
42,000
Total cash disbursements …………..
$166,000
$240,000
$292,000
$314,000
$1,012,000
Problem 7-24B (continued)
2.
Year 2 Quarter
First
Second
Third
Fourth
Year
Budgeted sales ………………
$350,000
$450,000
$550,000
$430,000
$1,780,000
Variable expense rate ……..
× 10%
× 10%
× 10%
× 10%
× 10%
Variable expenses …………..
35,000
45,000
55,000
43,000
178,000
Fixed expenses ……………..
85,000
85,000
85,000
85,000
340,000
Total expenses ………………
120,000
130,000
140,000
128,000
518,000
Less depreciation …………..
15,000
15,000
15,000
15,000
60,000
Cash disbursements ……….
$105,000
$115,000
$125,000
$113,000
$458,000
Problem 7-24B (continued)
3. Cash budget for Year 2:
Year 2 Quarter
First
Second
Third
Fourth
Year
Cash balance, beginning ………………..
$ 26,000
$ 38,000
$ 24,000
$ 38,500
$ 26,000
Add collections from sales ………………
293,000
391,000
489,000
481,400
1,654,400
Total cash available ……………………….
319,000
429,000
513,000
519,900
1,680,400
Less disbursements:
Merchandise purchases ……………….
166,000
240,000
292,000
314,000
1,012,000
Operating expenses ……………………
105,000
115,000
125,000
113,000
458,000
Dividends …………………………..…….
10,000
10,000
10,000
10,000
40,000
Land ………………………………………..
0
86,000
47,500
0
133,500
Total disbursements ………………………
281,000
451,000
474,500
437,000
1,643,500
Excess (deficiency) of receipts over
disbursements ………………………….
38,000
(22,000)
38,500
82,900
36,900
Financing:
Borrowings ……………………………….
0
46,000
0
0
46,000
Repayments ………………………………
0
0
0
(46,000)
(46,000)
Interest ($46,000 × 1% × 9) ……….
0
0
0
(4,140)
(4,140)
Total financing ……………………………..
0
46,000
0
(50,140)
(4,140)
Cash balance, ending …………………….
$ 38,000
$ 24,000
$ 38,500
$ 32,760
$ 32,760
Problem 7-25B (120 minutes)
1. Schedule of expected cash collections:
April
May
June
Quarter
Cash sales …………………………..
$50,400
*
$51,100
$58,800
$160,300
Credit sales1 …………………………..
21,000
*
21,600
21,900
64,500
Total collections …………………………..
$71,400
*
$72,700
$80,700
$224,800
2. Inventory purchases budget:
April
May
June
Quarter
Budgeted cost of goods
sold1 …………………………..
$50,400
*
$51,100
*
$58,800
$160,300
Add desired ending
inventory2 …………………………..
10,220
*
11,760
11,200
11,200
Total needs …………………………..
60,620
*
62,860
70,000
171,500
Less beginning inventory …………………………..
10,080
*
10,220
11,760
10,080
Required purchases …………………………..
$50,540
*
$52,640
$58,240
$161,420
April
May
June
Quarter
March purchases …………………………..
$36,500
*
$ 36,500
*
April purchases …………………………..
12,635
*
$37,905
*
50,540
*
May purchases …………………………..
13,160
$39,480
52,640
June purchases …………………………..
14,560
14,560
Total disbursements …………………………..
$49,135
*
$51,065
$54,040
$154,240
$4,000 × 12% × 3/12 =
*
Given.
Problem 7-25B (continued)
3. Schedule of Expected Cash Disbursements—Selling and Administrative
Expenses
April
May
June
Quarter
Salaries and wages …………………………..
$12,500
*
$12,500
$12,500
$37,500
Rent …………………………..…………………………..
3,600
*
3,600
3,600
10,800
Other expenses …………………………..
5,760
*
5,840
6,720
18,320
Total disbursements …………………………..
$21,860
*
$21,940
$22,820
$66,620
4. Cash Budget:
April
May
June
Quarter
Cash balance, beginning …………………………..
$10,500
*
$ 5,905
$ 5,600
$ 10,500
Add cash collections …………………………..
71,400
*
72,700
80,700
224,800
Total cash available …………………………..
81,900
*
78,605
86,300
235,300
Less disbursements:
For inventory …………………………..
49,135
*
51,065
54,040
154,240
For expenses …………………………..
21,860
*
21,940
22,820
66,620
For equipment …………………………..
9,000
*
0
0
9,000
Total disbursements …………………………..
79,995
*
73,005
76,860
229,860
Excess (deficiency) of cash …………………………..
1,905
*
5,600
9,440
5,440
Financing:
Borrowing …………………………..
4,000
0
0
4,000
Repayment …………………………..
0
0
(4,000)
(4,000)
Interest …………………………..
0
0
(120)
1
(120)
Total financing …………………………..
4,000
0
(4,120)
(120)
Cash balance, ending …………………………..
$ 5,905
$ 5,600
$ 5,320
$ 5,320
Problem 7-25B (continued)
5.
Dillinger Company
Income Statement
For the Quarter Ended June 30
Sales ($72,000 + $73,000 + $84,000) ………………………..
$229,000
Cost of goods sold:
Beginning inventory (Given) …………………………..
$ 10,080
Add purchases (Part 2) …………………………..
161,420
Goods available for sale …………………………..
171,500
Ending inventory (Part 2) …………………………..
11,200
160,300
*
Gross margin ……………………………………………………….
68,700
Selling and administrative expenses:
Salaries and wages (Part 3) …………………………..
37,500
Rent (Part 3) ………………………………………………………
10,800
Depreciation ($1,000 × 3) …………………………..
3,000
Other expenses (Part 3) …………………………..
18,320
69,620
Net operating income ……………………………………………..
(920)
Interest expense (Part 4) …………………………..
120
Net income (loss) …………………………………………………..
$ (1,040)
*A simpler computation would be: $229,000 × 70% = $160,390.
Problem 7-25B (continued)
6.
Dillinger Company
Balance Sheet
June 30
Assets
Current assets:
Cash (Part 4) ………………………………………………………
$ 5,320
Accounts receivable ($84,000 × 30%) ………………………
25,200
Inventory (Part 2) ………………………………………………..
11,200
Total current assets ………………………………………………..
41,720
Building and equipment—net ($140,000 + $9,000 –
$3,000) ……………………………………………………………..
146,000
Total assets …………………………………………………………..
$187,720
Liabilities and Equity
Accounts payable (Part 2: $58,240 × 75%) ………………….
$ 43,680
Stockholders’ equity:
Capital stock (Given) …………………………………………….
$ 40,000
Retained earnings* ………………………………………………
104,040
144,040
Total liabilities and equity …………………………..
$187,720
*
Retained earnings, beginning …………………………..
$105,080
Add net income (loss) …………………………..
(1,040)
Retained earnings, ending …………………………..
$104,040
Problem 7-26B (120 minutes)
1. Schedule of expected cash collections:
January
February
March
Total
Cash sales ………………………..
$31,800.00
$35,520.00
$35,760.00
$103,080.00
Credit sales ………………………
36,900.00
47,700.00
53,280.00
137,880.00
Total collections …………………
$68,700.00
$83,220.00
$89,040.00
$240,960.00
2. a. Merchandise purchases budget:
January
February
March
Total
Budgeted cost of goods sold* ..
$55,650.00
$62,160.00
$62,580.00
$180,390.00
Add desired ending inventory† .
12,432.00
12,516.00
8,134.00
8,134.00
Total needs ………………………..
68,082.00
74,676.00
70,714.00
188,524.00
Less beginning inventory ………
11,130.00
12,432.00
12,516.00
11,130.00
Required purchases ……………..
$56,952.00
$62,244.00
$58,198.00
$177,394.00
January
February
March
Total
For December purchases …….
$32,880.00
$ 32,880.00
For January purchases ………..
14,238.00
$42,714.00
56,952.00
For February purchases ………
15,561.00
$46,683.00
62,244.00
For March purchases ………….
14,549.50
14,549.50
Total cash disbursements …….
$47,118.00
$58,275.00
$61,232.50
$166,625.50
Problem 7-26B (continued)
3. Schedule of cash disbursements for selling and administrative expenses:
January
February
March
Total
Commissions ………………………..
$ 12,150.00
$12,150.00
$12,150.00
$36,450.00
Rent …………………………………..
2,650.00
2,650.00
2,650.00
7,950.00
Other expenses …………………….
6,360.00
7,104.00
7,152.00
20,616.00
Total cash disbursements for
operating expenses ……………..
$21,160.00
$21,904.00
$21,952.00
$65,016.00
Problem 7-26B (continued)
4. Cash budget:
January
February
March
Total
Cash balance, beginning …………
$ 6,700.00
$ 5,292.00
$ 5,233.00
$ 6,700.00
Add cash collections ………………
68,700.00
83,220.00
89,040.00
240,960.00
Total cash available ……………..
75,400.00
88,512.00
94,273.00
247,660.00
Less disbursements:
For inventory purchases ……….
47,118.00
58,275.00
61,232.50
166,625.50
For selling and administrative
expenses ………………………..
21,160.00
21,904.00
21,952.00
65,016.00
For equipment purchases ……..
3,830.00
8,100.00
0.00
11,930.00
Total disbursements ……………….
72,108.00
88,279.00
83,184.50
243,571.50
Excess (deficiency) of cash ……..
3,292.00
233.00
11,088.50
4,088.50
Financing:
Borrowings ………………………..
2,000.00
5,000.00
0.00
7,000.00
Repayments ………………………
0.00
0.00
(5,000.00)
(5,000.00)
Interest* ………………………….
0.00
0.00
(160.00)
(160.00)
Total financing………………………
2,000.00
5,000.00
(5,160.00)
1,840.00
Cash balance, ending……………..
$ 5,292.00
$ 5,233.00
$ 5,928.50
$ 5,928.50
*Interest calculation:
$2,000 × 12% × 3/12
=
$ 60.00
$5,000 × 12% × 2/12
=
100.00
Total interest
$160.00
Problem 7-26B (continued)
5. Income Statement:
Hancock Company
Income Statement
For the Quarter Ended March 31
Sales ($79,500.00 + $88,800.00 +
$89,400.00) ……………………………………
$257,700.00
Cost of goods sold:
Beginning inventory (given) ………………..
$ 11,130.00
Purchases (Part 2) …………………………...
177,394.00
Goods available for sale ……………………..
188,524.00
Ending inventory (Part 2) …………………..
8,134.00
180,390.00
*
Gross margin ……………………………………..
77,310.00
Selling and administrative expenses:
Commissions (Part 3) ………………………..
36,450.00
Rent (Part 3) …………………………………..
7,950.00
Depreciation ……………………………………
2,550.00
Other expenses (Part 3) …………………….
20,616.00
67,566.00
Net operating income ………………………….
9,744.00
Interest expense (Part 4) ……………………..
160.00
Net income ……………………………………….
$ 9,584.00
Problem 7-26B (continued)
6. Balance sheet:
Hancock Company
Balance Sheet
March 31
Assets
Current assets:
Cash (Part 4) ………………………………………………………..
$ 5,928.50
Accounts receivable (60% × $89,400) ………………………..
53,640.00
Inventory (Part 2) ………………………………………………….
8,134.00
Total current assets ………………………………………………….
67,702.50
Buildings and equipment, net ($120,000 + $3,830 + $8,100
– $2,550) …………………………………………………………….
129,380.00
Total assets …………………………………………………………….
$197,082.50
Current liabilities:
Accounts payable (Part 2: 75% × $58,198) ..
Common stock ……………………………………..
Retained earnings* ……………………………….
51,434.00
Total liabilities and equity ………………………….
*
Retained earnings, beginning ……………….
Add net income ………………………………..
Retained earnings, ending …………………..