| PROBLEM 22-5B | | | | | | | | | | |
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| Near the end of 2015, the management of IsleCorp., a merchandising company, prepared the | | |
| following estimated balance sheet for December 31,2015. | | | | | | |
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| | ISLE CORPORATION |
| | Estimated Balance Sheet |
| | 31-Dec-15 |
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| | Assets | | | | Liabilities and Equity | |
| | Cash | | | 36,000 | | | Accounts payable | | 360,000 | |
| | Accounts Receivable | | 525,000 | | | Bank loan Payable | | 15,000 | |
| | Inventory | | | 150,000 | | | Taxes payable (due 3/15/2016) | 90,000 | |
| | Total Current Assets | | | 711,000 | | Total Liabilities | | | 465,000 |
| | Equipment | | | 540,000 | | | Common Stock | | 472,500 | |
| | Less Accumulated Depreciation | 67,500 | | | Retained Earnings | | 246,000 | |
| | Equipment, net | | | 472,500 | | Total Stockholders' equity | | | 718,500 |
| | Total Assets | | | | 1,183,500 | | Total liabilities and equity | | | 1,183,500 |
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| To prepare the master budget for January, Februaryand March of 2016, management gathers the following | |
| information | | | | | | | | | | |
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| a. | Isle Corp.'s single product is purchased for $30per unit and resold for $45 per unit. The | | |
| | expected inventory level of 5,000 units onDecember 31, 2015, is more than management's desired | |
| | level for 2015, which is 25% of the next month'sexpected sales (in units). Expected sales are: | |
| | January, 6,000 units; February, 8,000 units; March,10,000 units; and April, 9,000 units. | | |
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| b. | Cash sales and credit sales represent 25% and 75%,respectively, of total sales. Of the credit sales, | |
| | 60% is collected in the first month after themonth of sale and 40% in the second month after | |
| | the month of sale. For the $525,000 accountsreceivable balance at December 31, 2015, | | |
| | $315,000 is collected in January 2016 and theremaining $210,000 is collected in February 2016. | |
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| c. | Merchandise purchases are paid for as follows: 20%in the first month after the month of purchase | |
| | and 80% in the second month after the month ofpurchase. For the $360,000 accounts payable | |
| | balance at December 31, 2015, $72,000 is paid inJanuary 2016 and the remaining $288,000 | |
| | is paid in February 2016. | | | | | | | | |
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| d. | Sales commissions equal to 20% of sales are paideach month. Sales salaries (excluding commissions) | |
| | are $90,000 per year. | | | | | | | | |
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| e. | General and administrative salaries are $144,000per year. Maintenance expense equals $3,000 per month |
| | and is paid in cash. | | | | | | | | | |
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| f. | Equipment reported in the December 31, 2015balance sheet was purchased in January 2015. It is being |
| | depreciated over 8 years under the straight-linemethod with no salvage value. The following amounts for |
| | new equipment purchases are planned in the comingquarter: January, $72,000; February, $96,000; and |
| | March, $28,800. This equipment will be depreciatedusing the straight-line method over 8 years with no |
| | salvage value. A full month's depreciation istaken for the month in which equipment is purchased. | |
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| g. | The company plans to acquire land at the end ofMarch at a cost of $150,000, which will be paid with cash |
| | on the last day of the month. | | | | | | | | |
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| h. | Isle Corp. has a working arrangement with its bankto obtain additional loans as needed. The interest rate |
| | is 12% per year, and interest is paid at eachmonth-end based on the beginning balance. Partial or full |
| | payments on these loans can be made o the last dayof the month. Isle has agreed to maintain a minimum |
| | ending cash balance of $36,000 in each month. | | | | | | |
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| i. | The income ta rate for the company is 40%. Incometaxes on the first quarter's income will not be paid until |
| | April 15. | | | | | | | | | | |
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| Prepare a master budget for the first three monthsof 2016. Round to the nearest dollar. | |
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