FMGT 1116 Lecture Notes - Income Statement, Accounts Receivable
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[The following information applies to the questions displayed below.] |
Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The companyâs balance sheet as of June 30th is shown below: |
Beech Corporation Balance Sheet June 30 | |
Assets | |
Cash | $ 92,000 |
Accounts receivable | 130,000 |
Inventory | 48,600 |
Plant and equipment, net of depreciation | 216,000 |
Total assets | $ 486,600 |
Liabilities and Stockholdersâ Equity | |
Accounts payable | $ 77,000 |
Common stock | 329,000 |
Retained earnings | 80,600 |
Total liabilities and stockholdersâ equity | $ 486,600 |
rev: 09_17_2014_QC_54310
7.
value:
3.12 points
Required information
Beechâs managers have made the following additional assumptions and estimates: |
1. | Estimated sales for July, August, September, and October will be $270,000, $290,000, $280,000, and $300,000, respectively. |
2. | All sales are on credit and all credit sales are collected. Each monthâs credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. |
3. | Each monthâs ending inventory must equal 30% of the cost of next monthâs sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. |
4. | Monthly selling and administrative expenses are always $50,000. Each month $5,000 of this total amount is depreciation expense and the remaining $45,000 relates to expenses that are paid in the month they are incurred. |
5. | The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. |
Required: |
1. | Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. |
2-a. | Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. |
2-b. | Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. |
3. | Prepare an income statement for the quarter ended September 30. |
4. | Prepare a balance sheet as of September 30. |
rev: 09_17_2014_QC_54310
References
eBook & Resources
WorksheetLearning Objective: 08-02 Prepare a sales budget, including a schedule of expected cash collections.Learning Objective: 08-09 Prepare a budgeted income statement.
Difficulty: 1 EasyLearning Objective: 08-04 Prepare a direct materials budget, including a schedule of expected cash disbursements for purchases of materials.Learning Objective: 08-10 Prepare a budgeted balance sheet.
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8.
value:
3.16 points
Required information
Beechâs managers have made the following additional assumptions and estimates: |
1. | Estimated sales for July, August, September, and October will be $270,000, $290,000, $280,000, and $300,000, respectively. |
2. | All sales are on credit and all credit sales are collected. Each monthâs credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. |
3. | Each monthâs ending inventory must equal 20% of the cost of next monthâs sales. The cost of goods sold is 60% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. |
4. | Monthly selling and administrative expenses are always $50,000. Each month $5,000 of this total amount is depreciation expense and the remaining $45,000 relates to expenses that are paid in the month they are incurred. |
5. | The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. |
Required: |
1. | Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. |
2-a. | Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. |
2-b. | Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. |
3. | Prepare an income statement for the quarter ended September 30. |
4. | Prepare a balance sheet as of September 30. |
.
1.Use financial statements that are in the attached document to calculate the financial ratios presented.
2. Prepare and interpret an analysis of the financial ratios showing the company.
3. Summarize the findings and make recommendations.
4. Du Pont method is used to determine the return on equity. This result tells us?
Zumba Production Inc.
Income Statement
Year Ended December 31,2017
Sales | $160,000 | ||
Cost of Goods Solds: | |||
Merchandise Inventory, Jan 1,2013 | $208,400 | ||
Purchases (net) | 37,320 | ||
Goods Available for Sale | $171,080 | ||
Merchandise Inventory, Dec. 31, 2013 | 65,080 | ||
Cost of Goods Sold | 106,000 | ||
Gross Profit | $54,000 | ||
Operating Expenses | 37,000 | ||
Income from Operations | $17,000 | ||
Other Income and Expense: | |||
Interest Expense | 6,1000 | ||
Income before Tax | $10,900 | ||
Income Tax Expense | 4,360 | ||
Net Income | $6,540 |
Zumba Production Inc.
Balance Sheet
Year Ended December 31, 2017
Cash | $500 | |
Marketable Securities | 1,000 | |
Accounts Receivable | 25,000 | |
Merchandise Inventory | 45,500 | |
Property, Plant, and Equipment (net) | 60,000 | |
Furniture and Fixtures | 18,000 | |
Total Assets | $150,000 | |
Accounts Payable | $22,000 | |
Notes Payable | 40,000 | |
Accrued Salaries Payable | 7,000 | |
Long-Term Debt | 22,950 | |
Common Stock ($10-par) | 31,500 | |
Retained Earnings | 26,550 | |
Total Liabilities and Stockholders Equity | $150,000 |
The following financial ratios are presented according to the market where it competes Zumba Production Inc.
Ratio | Market | Zumba Production |
a. Current ratio | 1.80 | |
b. Quick ratio | 0.70 | |
c. Inventory turnover * | 2.50 | |
d. Average collection period * | 37.5 days | |
e. Debt ratio | 65% | |
f. Times interest earned ratio | 3.80 | |
g. Gross profit margin | 38% | |
h. Net profit margin | 3.50% | |
i. Return on total sales | 4.00% | |
j. Return on common equity | 9.50% | |
k. Market/ Book ratio | 1.10 | |
l. Working Capital | $5,000 | |
*Based on 365 days a year |
Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
Assets | |||||
Cash | $ | 36,000 | |||
Accounts receivable | 520,000 | ||||
Inventory | 105,000 | ||||
Total current assets | 661,000 | ||||
Equipment | $ | 539,000 | |||
Less accumulated depreciation | 67,375 | ||||
Equipment, net | 471,625 | ||||
Total assets | $ | 1,132,625 | |||
Liabilities and Equity | |||||
Accounts payable | $ | 370,000 | |||
Bank loan payable | 15,000 | ||||
Taxes payable (due 3/15/2014) | 89,000 | ||||
Total liabilities | $ | 474,000 | |||
Common stock | 473,000 | ||||
Retained earnings | 185,625 | ||||
Total stockholdersâ equity | 658,625 | ||||
Total liabilities and equity | $ | 1,132,625 | |||
To prepare a master budget for January, February, and March of 2014, management gathers the following information. |
a. | Dimsdale Sportsâ single product is purchased for $20 per unit and resold for $55 per unit. The expected inventory level of 5,250 units on December 31, 2013, is more than managementâs desired level for 2014, which is 20% of the next monthâs expected sales (in units). Expected sales are: January, 6,500 units; February, 9,100 units; March, 11,250 units; and April, 9,500 units. |
b. | Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 57% is collected in the first month after the month of sale and 43% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 is collected in February. |
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 of purchase. For the December 31, 2013, accounts payable balance, $80,000 is paid in January and the remaining $290,000 is paid in February. |
d. | Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year. |
e. | General and administrative salaries are $156,000 per year. Maintenance expense equals $2,000 per month and is paid in cash. |
f. | Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $35,000; February, $97,000; and March, $29,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full monthâs depreciation is taken for the month in which equipment is purchased. |
g. | The company plans to acquire land at the end of March at a cost of $150,000, which will be paid with cash on the last day of the month. |
h. | Dimsdale Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $8,350 in each month. |
i. | The income tax rate for the company is 43%. Income taxes on the first quarterâs income will not be paid until April 15. |
Required: | ||||||
Prepare a master budget for each of the first three months of 2014; include component budgets for the following areas:
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