Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
1229
Problem 20-5B (60 minutes)
Part 1
H2O SPORTS
Merchandise Purchases Budgets
For April, May, and June
April
May
June
WATER SKIS
Budgeted sales for next month ………………………
90,000
130,000
100,000
Ratio of ending inventory to future sales ………..
10%
10%
10%
Budgeted ending inventory …………………………..
Required units of available merchandise ………..
Budgeted purchases ……………………………………..
127,000
TOW ROPES
Budgeted sales for next month ………………………
90,000
110,000
100,000
Ratio of ending inventory to future sales ………..
10%
10%
10%
Required units of available merchandise ………..
Budgeted purchases ……………………………………..
109,000
LIFE JACKETS
Budgeted sales for next month ………………………
190,000
200,000
120,000
Ratio of ending inventory to future sales ………..
10%
10%
10%
Budgeted ending inventory …………………………..
Required units of available merchandise ………..
179,000
210,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Problem 20-5B (Concluded)
Part 2. Analysis Component
Inventory levels might become too high for a number of reasons, including:
• Management may have simply lost sight of inventory levels, thereby
allowing them to reach inappropriately high levels.
• Competition among suppliers may have caused them to become more
customer oriented, with the result that they will deliver products in
smaller lots more quickly.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
1231
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 …………………………
Total cash available ………………………………….
Payroll ……………………………………………………
16,000
17,000
18,000
Rent ……………………………………………………….
Other expenses ………………………………………
64,000
8,000
7,000
Repayment on bank loan ………………………..
80,000
Interest on bank loan* …………………………..
________
________
2,400
Total cash payments ………………………………
Supporting calculations
Collections of credit sales*
March
April
May
June
March sales ($180,000)—[25%: 45%: 20%: 9%] …………..
$ 45,000
$ 81,000
$ 36,000
$ 16,200
April sales ($220,000)—[25%: 45%: 20%] …………………..
May sales ($300,000)—[25%: 45%] …………………………..
June sales ($380,000)—[25%] …………………………..
–
–
95,000
Payments on credit purchases**
March
April
May
June
March purchases ($100,000)—(0%: 80%: 20%) …………………………..
$ 0
$ 80,000
$ 20,000
$ –
April purchases ($210,000)—(0%: 80%: 20%) …………………………..
May purchases ($180,000)—(0%: 80%) …………………………..
–
–
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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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 ………………………………
173,250
March ………………………………….
167,200
165,000
Part 2
Budgeted ending inventories (in units)
January
February
March
April
Next month’s budgeted sales units ………..
22,500
19,000
18,750
21,000
Budgeted “base” ending inventory ………..
4,200
Budgeted ending inventory units ……………
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 units (part 2) ………
3,900
3,850
4,300
Add budgeted sales units …………………………..
22,500
19,000
18,750
Deduct beginning inventory (units) …………….
(4,600)
(3,900)
Budgeted purchases (units) ……………………….
21,800
18,950
19,200
Budgeted cost per unit ……………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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 …………………………………….
30
70
30
Part 5
CONNICK COMPANY
Cash Budget
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 payments for:
120
0
411,460
388,300
Additional loan ……………………………………………………….
Repayment of loan ……………………………………………………….
$ 58,070
$ 94,920
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Problem 20-8B (130 minutes)
Part 1
ISLE CORPORATION
Sales Budgets
January, February, and March 2020
Budgeted
Units
Budgeted
Unit Price
Budgeted
Total Dollars
January 2020 ……………………………………………….
6,000
$45
$ 270,000
February 2020………………………………………………
8,000
March 2020 ………………………………………………….
Part 2
ISLE CORPORATION
Merchandise Purchases Budgets
January, February, and March 2020
January
February
March
Total
Next month’s budgeted sales units …..
8,000
10,000
9,000
Ratio of inventory to future sales ………
x 25%
x 25%
x 25%
Budgeted ending inventory units ………
2,000
2,500
2,250
Add budgeted sales units …………………
8,000
10,500
Deduct beginning inventory units ……..
(5,000)
Units to be purchased ………………………
Budgeted cost per unit ……………………..
Part 3
ISLE CORPORATION
Selling Expense Budgets
January, February, and March 2020
January
February
March
Total
Budgeted sales …………………………..
$270,000
$360,000
$450,000
1235
Problem 20-8B (Continued)
Part 4
ISLE CORPORATION
General and Administrative Expense Budgets
January, February, and March 2020
January
February
March
Total
Salaries ……………………………………………….
$12,000
$12,000
$12,000
$36,000
Maintenance ………………………………………..
* Depreciation expense calculations
Annual
Amount
January
February
March
Total
Equipment owned
on 12/31/2019 ………………..
$67,500
$5,625
$5,625
$5,625
$16,875
2,250
12,000
Part 5
ISLE CORPORATION
Capital Expenditures Budgets
January, February, and March 2020
January
February
March
Equipment purchases …………………………………..
$72,000
$96,000
$ 28,800
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Problem 20-8B (Continued)
Part 6
ISLE CORPORATION
Cash Budgets
January, February, and March 2020
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 payments for:
306,000
123,000
Sales commissions …………………………………….
Sales salaries ……………………………………………..
General & administrative salaries ………………..
Maintenance expense …………………………………
Taxes payable …………………………………………….
Purchases of equipment …………………………..
Purchase of land …………………………………………
150,000
Total cash payments …………………………………….
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
$182,850
$107,850
$ 36,000
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 12/31/2019 (60%; 40%) ………..
$315,000
$210,000
$ 525,000
January credit sales (60%; 40%) ………………..
$ 81,000
February credit sales (60%; 40%) ……………….
_______
Total from credit customers ……………………….
$315,000
Cash sales…………………………………………………
270,000
Total cash received ……………………………………
$382,500
$421,500
$355,500
$1,159,500
Credit purchases ……………………………………….
$255,000
$292,500
$637,500
Accounts payable at 12/31/2019 (20%; 80%) .
$288,000
$360,000
January purchases (20%; 80%) ………………….
February purchases (20%) …………………………
_______
Total paid on purchases …………………………….
$306,000
$123,000
$501,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Problem 20-8B (Continued)
Part 7
ISLE CORPORATION
Budgeted Income Statement
For Three Months Ended March 31, 2020
Sales ……………………………………………………………………..
$1,080,000
Cost of goods sold (24,000 units @ $30) …………………
720,000
Gross profit …………………………………………………………..
360,000
Operating expenses
305,075
Income before taxes ………………………………………………
Income taxes (40%) ……………………………………………….
21,970
Part 8
ISLE CORPORATION
Budgeted Balance Sheet
March 31, 2020
ASSETS
Cash ……………………………………………………
$ 36,000
Cash budget
Accounts receivable …………………………..
445,500
Note C
Inventory ……………………………………………..
67,500
Note D
Total current assets …………………………..
549,000
Equipment …………………………………………..
Note E
Less accumulated depreciation ……………
647,875
Note F
150,000
Capital budget
LIABILITIES AND EQUITY
Accounts payable ………………………………..
Note G
Bank loan payable ……………………………….
Cash budget
Taxes payable (due 4/15/2020) ……………..
21,970
Income stmt.
Total liabilities ……………………………………..
595,420
Common stock …………………………………….
Unchanged
Retained earnings ………………………………..
Note H
Total stockholders’ equity ……………………
751,455
1238
Problem 20-8B (Concluded)
Supporting Footnotes
Note C
Beginning receivables ……………………………………………………….
$ 525,000
Credit sales ………………………………………………………………………..
810,000
Less collections ……………………………………………………….………..
Note D
Beginning inventory ……………………………………………………….
$ 150,000
Purchases ………………………………………………………………………….
637,500
Less cost of goods sold ……………………………………………………..
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 ……………………………………………….
Purchases ………………………………………………………………………….
Payments …………………………………………………………………………..
Ending accounts payable ……………………………………………………
$ 496,500
Note H
Beginning retained earnings ……………………………………………….
Net income …………………………………………………………………………
32,955
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Serial Problem — SP 20
Serial Problem, Business Solutions (50 minutes)
Part 1
BUSINESS SOLUTIONS—Computer Furniture Segment
Budgeted Income Statements
For Months of April, May, and June
April
May
June
Sales* …………………………………………………
$69,600
$75,550
$81,500
Cost of goods sold**…………………………..
54,000
57,750
61,500
Gross profit ………………………………………..
15,600
17,800
20,000
Expenses
*Results from per month volume increases for the next 3 months
Desks
Units
Sales (@ $1,150)
Variable Cost of Sales (@ $750)
April …………………………..
48
$55,200
$36,000
May …………………………..
52
June …………………………..
56
Chairs
Units
Variable Cost of Sales (@ $250)
April …………………………..
32
$14,400
May …………………………..
35
June …………………………..
38
Total Desk & Chairs
Sales
Variable Cost of Sales
April …………………………..
$69,600 = $55,200 + $14,400
$44,000 = $36,000 + $8,000
May …………………………..
$75,550 = $59,800 + $15,750
$47,750 = $39,000 + $8,750
June …………………………..
$81,500 = $64,400 + $17,100
$51,500 = $42,000 + $9,500
April …………………………..
$10,000
May ……………………………………………………….
June
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Serial Problem, Business Solutions (Concluded)
Part 2
The plan for increasing sales volume by reducing the price and increasing
advertising would cause the company to generate a loss in the first month
of the next quarter. This result is not encouraging. However, the company
Company Analysis — AA 20-1
1. Apple’s statement of cash flows would report cash paid for acquisitions
of property, plant and equipment among the activities disclosed in its
cash flows from investing activities section.
1. and 2.
Apple and Google figures for fiscal years 2017 and 2016—data
available from Appendix A—are shown below ($ millions):
Apple
2017
2016
Sales ……………
$229,234
$215,639
Google
2017
2016
Sales ……………
$110,855
$90,272
3. Google spends more (as a percent of sales on selling, general, and
administrative expenses.
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Global Analysis — AA 20-3
(Samsung financial statement amounts in millions of Korean won; Apple financial
statement amounts in millions of U.S. dollars)
1. Samsung, 2017: ₩42,792,234 / ₩239,575,376 = 17.86%
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Ethics Challenge — BTN 20-1
Report on “Use It or Lose It” Budgeting
Instructor note: There is no widely accepted solution to this problem. The key is for the student to
think about the problem and work to at least modify the negative behavioral consequences of this
practice.
Any plan offered as a solution must better align upper management’s
expectations with department managers’ behavior. For example, upper
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Communicating in Practice — BTN 20-2
MEMORANDUM
TO: ____________________
FROM: ____________________
DATE: ____________________
SUBJECT: ____________________
The content of this memorandum will vary among students. The student
must emphasize the need to know the compensation structure of the sales
Taking It to the Net — BTN 20-3
1. The budgeting methodologies listed as being covered on the CMA exam
include:
a. Annual business plans (master budgets)
2. The types of budgets (“annual profit plans”) listed as being covered on
the CMA exam include:
a. Operational budgets
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Teamwork in Action — BTN 20–4
There is no specific solution to this assignment. The instructor should
watch for proper development and identification of all reasonable costs.
Entrepreneurial Decision — BTN 20-5
1. Budgeting allows an organization to plan its activities better by
2. To expand their operations, Anna and Phil will need financing. Budgets
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 20
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Hitting the Road — BTN 20-6
Instructor note: This problem is designed to (1) show that external factors are important
in determining price and volume and (2) develop awareness of external factors when
preparing a sales budget.
1. & 2.
The types of external factors identified by the student for consideration in
part (1), or selected as an explanatory factor for part (2), might include the
following:
• Location, such as near a convenient or busy traffic area.