ACCT-311 Lecture Notes - Lecture 7: Income Statement
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I only need help with these parts of the problem. I've alreadydone the rest of my homework, but cannot understand what I'm doingwrong.
#1-part D
#2-The Financing Section(I cannot figure out how to find May'sborrowing, and June's interest/repayments
#3-The interest expense
#4-The whole problem.
You have just been hired as a management trainee by Cravat SalesCompany, a nationwide distributor of a designer�s silk ties. Thecompany has an exclusive franchise on the distribution of the ties,and sales have grown so rapidly over the last few years that it hasbecome necessary to add new members to the management team. Youhave been given responsibility for all planning and budgeting. Yourfirst assignment is to prepare a master budget for the next threemonths, starting April 1. You are anxious to make a favorableimpression on the president and have assembled the informationbelow.
The company desires a minimumending cash balance each month of $10,000. The ties are sold toretailers for $8 each. Recent and forecasted sales in units are asfollows: |
January(actual) | 25,000 | June | 67,000 |
February(actual) | 33,000 | July | 47,000 |
March (actual) | 35,000 | August | 40,000 |
April | 36,000 | September | 39,000 |
May | 54,000 | ||
The large buildup in sales before and during June is due toFather�s Day. Ending inventories are supposed to equal 90% of thenext month�s sales in units. The ties cost the company $5 each. |
Purchases are paid for as follows:50% in the month of purchase and the remaining 50% in the followingmonth. All sales are on credit, with no discount, and payablewithin 15 days. The company has found, however, that only 25% of amonth�s sales are collected by month-end. An additional 50% iscollected in the following month, and the remaining 25% iscollected in the second month following sale. Bad debts have beennegligible. |
The company�s monthly sellingand administrative expenses are given below: |
Variable: | |||
Sales commissions | $ 1 | per tie | |
Fixed: | |||
Wages and salaries | $ | 22,700 | |
Utilities | $ | 16,900 | |
Insurance | $ | 1,000 | |
Depreciation | $ | 1,500 | |
Miscellaneous | $ | 3,100 | |
All selling and administrativeexpenses are paid during the month, in cash, with the exception ofdepreciation and insurance expired. Land will be purchased duringMay for $21,000 cash. The company declares dividends of $12,000each quarter, payable in the first month of the following quarter.The company�s balance sheet at March 31 is given below: |
Assets | ||
Cash | $ | 15,000 |
Accounts receivable($66,000 February sales; $210,000 March sales) | 276,000 | |
Inventory (32,400units) | 162,000 | |
Prepaidinsurance | 12,000 | |
Fixed assets, net ofdepreciation | 123,150 | |
Total assets | $ | 588,150 |
Liabilities and Stockholders� Equity | ||
Accountspayable | $ | 89,750 |
Dividendspayable | 12,000 | |
Capital stock | 300,000 | |
Retainedearnings | 186,400 | |
Total liabilitiesand stockholders� equity | $ | 588,150 |
The company has an agreement witha bank that allows it to borrow in increments of $1,000 at thebeginning of each month, up to a total loan balance of $130,000.The interest rate on these loans is 1% per month, and forsimplicity, we will assume that interest is not compounded. At theend of the quarter, the company would pay the bank all of theaccumulated interest on the loan and as much of the loan aspossible (in increments of $1,000), while still retaining at least$10,000 in cash. |
Required: | |
1. | Prepare a master budget for thethree-month period ending June 30. Include the following detailedbudgets: |
a. | A sales budget by month and intotal. (2 marks) (Omit the "$" sign inyour response.) |
Cravat Sales Company Sales Budget | ||||
April | May | June | Quarter | |
Total sales | $ | $ | $ | $ |
b. | A schedule of expected cash collections from sales, by month andin total. (8 marks)(Leave no cells blank -be certain to enter "0" wherever required. Omit the "$" sign inyour response.) |
Cravat Sales Company Schedule of Expected Cash Collections | ||||||||
April | May | June | Quarter | |||||
February sales | $ | $ | $ | $ | ||||
March sales | ||||||||
April sales | ||||||||
May sales | ||||||||
June sales | ||||||||
Total cashcollections | $ | $ | $ | $ | ||||
c. | A merchandise purchases budgetin units and in dollars. Show the budget by month and intotal.(10 marks) (Input all amounts aspositive values. Omit the "$" sign in yourresponse.) |
Cravat Sales Company Merchandise Purchases Budget | ||||||||
April | May | June | Quarter | |||||
Budgeted sales inunits | ||||||||
(Click toselect) Add Deduct : (Click to select) Budgeted ending inventoryBeginning inventory | ||||||||
Total needs | ||||||||
(Click toselect) Deduct Add : (Click to select) Beginning inventory Budgetedending inventory | ||||||||
Required unitpurchases | ||||||||
Unit cost | $ | $ | $ | $ | ||||
Required dollarpurchases | $ | $ | $ | $ | ||||
d. | A schedule of expected cash disbursements for merchandisepurchases, by month and in total. (6.50 marks)(Leave no cells blank - be certain to enter "0" whereverrequired. Omit the "$" sign in your response.) |
Cravat Sales Company Budgeted Cash Disbursements for Merchandise Purchases | ||||||||
April | May | June | Quarter | |||||
March purchases | $ | $ | $ | $ | ||||
April purchases | ||||||||
May purchases | ||||||||
June purchases | ||||||||
Total cashpayments | $ | $ | $ | $ | ||||
2. | A cash budget. Show the budget by month and intotal.(23.50 marks) (Input all amounts aspositive values except cash deficiency, repayments and interestwhich should be indicated by a minus sign. Leave no cells blank -be certain to enter "0" wherever required. Omit the "$" sign inyour response) |
Cravat Sales Company Cash Budget For the Three Months Ending June 30 | ||||||||
April | May | June | Quarter | |||||
Cash balance,beginning | $ | $ | $ | $ | ||||
Add receipts fromcustomers | ||||||||
Total cashavailable | ||||||||
Lessdisbursements: | ||||||||
Purchase ofinventory | ||||||||
Sales commissions | ||||||||
Salaries and wages | ||||||||
Utilities | ||||||||
Miscellaneous | ||||||||
Dividends paid | ||||||||
Land purchases | ||||||||
Totaldisbursements | ||||||||
Excess (deficiency)of receipts over disbursements | ||||||||
Financing: | ||||||||
Borrowings | ||||||||
Repayments | ||||||||
Interest | ||||||||
Total financing | ||||||||
Cash balance,ending | $ | $ | $ | $ | ||||
3. | A budgeted income statement for the three-month period endingJune 30. Use the contribution approach. (10 marks)(Input all amounts as positive values. Omit the "$" sign inyour response.) |
Cravat Sales Company Budgeted Income Statement For the Three Months Ended June 30 | ||||
(Click toselect) Cost of goods sold Insurance expenses Contribution marginNet income (loss) Net operating income (loss) Utilities Salesrevenue | $ | |||
Variableexpenses: | ||||
(Click to select)Commissions Cost of goods sold Salaries Net operating incomeAdvertising Utilities Rent | $ | |||
(Click to select)Utilities Commissions Salaries Rent Net operating incomeAdvertising Cost of goods sold | ||||
(Click toselect) Utilities Commissions Contribution margin Sales revenue Netoperating income (loss) Cost of goods sold Interest expense | ||||
Fixedexpenses: | ||||
(Click to select)Utilities Sales Net operating income (loss) Depreciation Wages andsalaries Miscellaneous Insurance expenses | ||||
(Click to select)Sales Utilities Depreciation Net operating income (loss)Miscellaneous Wages and salaries Insurance expenses | ||||
(Click to select)Insurance expenses Depreciation Wages and salaries MiscellaneousNet operating income (loss) Sales Utilities | ||||
(Click to select)Sales Net operating income (loss) Utilities Insurance expensesMiscellaneous Depreciation Wages and salaries | ||||
(Click to select)Miscellaneous Insurance expenses Sales Net operating income (loss)Utilities Wages and salaries Depreciation | ||||
(Click toselect) Sales revenue Wages and salaries Net operating income(loss) Net income (loss) Contribution margin Cost of goods soldUtilities | ||||
(Click toselect) Interest expense Rent Prepaid insurance Sales commissionsInsurance Net operating income (loss) Utilities | ||||
(Click toselect) Net income (loss) Contribution margin Sales revenueCommissions Wages and salaries Utilities Cost of goods sold | $ | |||
4. | A budgeted balance sheet as ofJune 30. (12 marks) (Besure to list the assets and liabilities in orderof their liquidity. Omit the "$" sign in yourresponse.) |
Cravat Sales Company Budgeted Balance Sheet June 30 | ||
Assets | ||
(Click toselect) Fixed assets, net of depreciation Accounts receivable CashInventory Prepaid insurance | $ | |
(Click toselect) Fixed assets, net of depreciation Cash Prepaid insuranceAccounts receivable Inventory | ||
(Click toselect) Accounts receivable Fixed assets, net of depreciationPrepaid insurance Cash Inventory | ||
(Click toselect) Fixed assets, net of depreciation Prepaid insuranceInventory Cash Accounts receivable | ||
(Click toselect) Dividends payable Accounts payable, purchases Fixed assets,net of depreciation Capital stock Retained earnings | ||
Total assets | $ | |
Liabilities and Stockholders� Equity | ||
(Click toselect) Cash Capital stock Accounts payable, purchases Dividendspayable Retained earnings | $ | |
(Click toselect) Retained earnings Loans payable, bank Capital stockDividends payable Accounts payable, purchases | ||
(Click toselect) Retained earnings Accounts payable, purchases Capital stockDividends payable Loans payable, bank | ||
(Click toselect) Cash Dividends payable Loans payable, bank Capital stockAccounts payable, purchases | ||
(Click toselect) Cash Loans payable, bank Retained earnings Dividendspayable Accounts payable, purchases | ||
Total liabilitiesand stockholders� equity | $ |
PLEASE ANSWER ALL QUESTIONS FOR EACH SECTION FOR #7,8,9,10; THE ANSWER FOR THOSE QUESTIONS ARE FROM SECTIONS1,2,3,4,5,6. Answer them correctly and take your time and fill ineach section where it needs an answer. Please help.
[The following information applies to the questionsdisplayed below.]
The management of Zigby Manufacturing prepared the followingestimated balance sheet for March, 2015: |
ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2015 | |||||
Assets | |||||
Cash | $ | 99,000 | |||
Accountsreceivable | 500,250 | ||||
Raw materialsinventory | 101,000 | ||||
Finished goodsinventory | 402,500 | ||||
Total current assets | 1,102,750 | ||||
Equipment,gross | 618,000 | ||||
Accumulateddepreciation | (159,000) | ||||
Equipment, net | 459,000 | ||||
Total assets | $ | 1,561,750 | |||
Liabilities and Equity | |||||
Accountspayable | 209,700 | ||||
Short-term notes payable | 21,000 | ||||
Total current liabilities | $ | 230,700 | |||
Long-term notepayable | 505,000 | ||||
Total liabilities | 735,700 | ||||
Common stock | 344,000 | ||||
Retainedearnings | 482,050 | ||||
Total stockholdersâ equity | 826,050 | ||||
Total liabilitiesand equity | $ | 1,561,750 | |||
To prepare a master budget for April, May, and June of 2015,management gathers the following information. |
a. | Sales for March total 23,000 units. Forecasted sales in unitsare as follows: April, 23,000; May, 19,000; June, 18,800; July,23,000. Sales of 249,000 units are forecasted for the entire year.The productâs selling price is $29.00 per unit and its totalproduct cost is $25.00 per unit. |
b. | Company policy calls for a given monthâs ending raw materialsinventory to equal 50% of the next monthâs materials requirements.The March 31 raw materials inventory is 5,050 units, which complieswith the policy. The expected June 30 ending raw materialsinventory is 4,500 units. Raw materials cost $20 per unit. Eachfinished unit requires 0.50 units of raw materials. |
c. | Company policy calls for a given monthâs ending finished goodsinventory to equal 70% of the next monthâs expected unit sales. TheMarch 31 finished goods inventory is 16,100 units, which complieswith the policy. |
d. | Each finished unit requires 0.50 hours of direct labor at a rateof $24 per hour. |
e. | Overhead is allocated based on direct labor hours. Thepredetermined variable overhead rate is $3.60 per direct laborhour. Depreciation of $24,320 per month is treated as fixed factoryoverhead. |
f. | Sales representativesâ commissions are 10% of sales and are paidin the month of the sales. The sales managerâs monthly salary is$3,900. |
g. | Monthly general and administrative expenses include $10,000administrative salaries and 0.8% monthly interest on the long-termnote payable. |
h. | The company expects 25% of sales to be for cash and theremaining 75% on credit. Receivables are collected in full in themonth following the sale (none is collected in the month of thesale). |
i. | All raw materials purchases are on credit, and no payables arisefrom any other transactions. One monthâs raw materials purchasesare fully paid in the next month. |
J. | The minimum ending cash balance for all months is $110,000. Ifnecessary, the company borrows enough cash using a short-term noteto reach the minimum. Short-term notes require an interest paymentof 1% at each month-end (before any repayment). If the ending cashbalance exceeds the minimum, the excess will be applied to repayingthe short-term notes payable balance. |
K. | Dividends of $19,000 are to bedeclared and paid in May. |
l. | No cash payments for income taxes are to be made during thesecond calendar quarter. Income tax will be assessed at 40% in thequarter and paid in the third calendar quarter. |
m. | Equipment purchases of $139,000 are budgeted for the last day ofJune. |
Required: |
Prepare the following budgets and other financial information asrequired. All budgets and other financial information should beprepared for the second calendar quarter, except as otherwise notedbelow. Round calculations up to the nearest whole dollar, exceptfor the amount of cash sales, which should be rounded down to thenearest whole dollar: |
1. SALES BUDGET
|
5. | Factory overhead budget.
|
You are a Consultant for the professional service firm, BUSI2083 LLP. Your firm specializes in providing a wide variety ofinternal business solutions for different clients. One of thepartners in your practice is impressed with the work you havecompleted to date and would like to give you additionalresponsibility. She has asked you to take the lead on thisengagement with the hope that a successful outcome may lead to yourpromotion to Senior Consultant. You take the background files fromthe partner and get started.
Perfect Stitch Replicaâs Limited, a nationwide distributor oflow-cost imitation clothing, has an exclusive agreement for thedistribution of the clothing. Sales have grown so rapidly over thelast few years that it has become necessary to add new members tothe management team. To date, the company's budgeting practiceshave been minimal, and at times, the company has experienced a cashshortage. You have been given responsibility for all planning andbudgeting. Your first assignment is to prepare a master budget forthe next three months, starting April 1. You are anxious to make afavourable impression and have assembled the information below.
Additional Information
The clothing is sold to retailers for an average price of $10each. Recent and forecasted sales in units are as follows:
Recent and forecast sales: | |
January (actual) | 20,000 |
February (actual) | 26,000 |
March (actual) | 40,000 |
April | 65,000 |
May | 100,000 |
June | 50,000 |
July | 30,000 |
August | 28,000 |
September | 25,000 |
Ending inventories should be equal to 40% of the next month'ssales in units.
The average cost of the clothing is $4 each. Purchases are paidfor as follows: 50% in the month of purchase and the remaining 50%in the following month. All sales are on credit, with no discount,and payable within 15 days. The company has found, however, thatonly 20% of a month's sales are collected by month-end. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
The company's monthly operating expenses are given below:
Variable: | |
Sales commissions (percentage of sales) | 4% |
Fixed: | |
Advertising | $200,000 |
Rent | $18,000 |
Wages and salaries | $106,000 |
Utilities | $7,000 |
Insurance | $3,000 |
Depreciation | $14,000 |
All operating expenses are paid during the month, in cash, withthe exception of depreciation and insurance. Insurance is paid onan annual basis, in November of each year. The company plans topurchase $16,000 in new equipment during May and $40,000 in newequipment during June; both purchases will be paid in cash. Thecompany declares dividends of $15,000 each quarter, payable in thefirst month of the following quarter. The company's balance sheetat March 31 is given below:
Balance Sheet at March 31: | |
Assets | |
Cash | $ 74,000 |
Accounts receivable* | 346,000 |
Inventory** | 104,000 |
Prepaid insurance | 21,000 |
Fixed assets, net of depreciation | 950,000 |
Total assets | $1,495,000 |
Liabilities and Shareholders' Equity | |
Accounts payable | $ 100,000 |
Dividends payable | 15,000 |
Common shares | 800,000 |
Retained earnings | 580,000 |
Total liabilities and shareholders' equity | $ 1,495,000 |
Notes to Balance Sheet: | |
*February sales | $ 26,000 |
March sales | 320,000 |
$ 346,000 | |
**Number of units: | |
Dollar amount of inventory | 104,000 |
Divide by cost per unit | $ 4 |
Number of units | 26,000 |
The company wants a minimum ending cash balance each month of$50,000. All borrowing is done at the beginning of the month; anyrepayments are made at the end of the month. The company has anagreement with a bank that allows it to borrow in increments of$1,000 at the beginning of each month. The interest rate on theseloans is 1% per month, and for simplicity, assume that interest isnot compounded. At the end of the quarter, the company would paythe bank all of the accumulated interest on the loan and as much ofthe loan as possible (in increments of $1,000), while stillretaining at least $50,000 in cash.
Prepare the following budgets for the first three months of2016:
A sales budget by month and in total
A schedule of expected cash collections from sales, by month andin total.
A merchandise purchases budget in units and in dollars. Show thebudget by month and in total.
A schedule of expected cash disbursements for merchandisepurchases, by month and in total.
A cash budget. Show the budget by month and in total.
A budgeted Income Statement for the three-month period endingJune 30. Use the variable costing approach.
Provide a budgeted Balance Sheet as at June 30th.