🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

MGAB03H3 Lecture Notes - Lecture 10: The Purchase Price, Accounts Payable, Promissory Note

28 views3 pages
peachturtle345
20 Jan 2016
School
UTSC
Department
Financial Accounting
Course
MGAB03H3
Professor
G.Quan Fun

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

The management of johnston company has asked you to prepare a master budget for the company from the following information. The budget is to cover the months of april, may and. June of 2007: unit sales for march are 10,000 units. Each month"s sales are expected to exceed the prior month"s results by 5%. The selling price of the product is per unit: the company"s policy calls for the ending inventory of a given month to equal 80% of the next month"s expected unit sales. The march 31 inventory is 8,400 units, which is in compliance with the policy. The purchase price is per unit: sales representatives" commissions are 12. 5% and are paid in the month of the sales. Receivables are collected in full in the month following the sale (none is collected in the month of the sale): all purchases of merchandise are on credit, and no payables arise from any other transactions.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

MGAB02H3
Final Exam
Study Guide
MGAB02H3 Study Guide - Final Guide: Current Liability, Stock Split, Amortization Schedule
turquoisegnu128
MGAB02H3 Lecture Notes - Lecture 5: Current Liability, Dividend, Gross Profit
peachturtle345
BU121
Final Exam
Study Guide
BU121 Study Guide - Final Guide: Accounts Payable, Retained Earnings, Accounts Receivable
ultramarinefrog82

Related Questions

Wild Wood Company's management asks you to prepare its masterbudget using the following information. The budget is to cover themonths of April, May, & June 2014 Molly Dolls Balance SheetMarch 31, 2014 Assets Liabilities Cash $50,000 Accounts payable$156,000 Accounts receivable 175,000 Short-term note payable 12,000Inventory 126,000 Total current liabilities 168,000 Total currentassets 351,000 Long-term notes payable 200,000 Equipment 480,000Total liabilities 368,000 Accumulated depreciation (90,000) Commonstock 235,000 Total assets $741,000 Retained earnings 138,000 Totalliabilities & equity $741,000 Additional Information a. Salesfor March total 10,000 units. Each month's sales are expected toexceed the prior month's results by 5%. The product's selling priceis $25 per unit. b. Company policy calls for a given month's endinginventory to equal 80% of the next month's expected unit sales. TheMarch 31 inventory is 8,400 units, which complies with the policy.The purchase price is $15 per unit. c. Sales representatives'commissions are 12.5% of sales and are paid in the month of thesales. The sales manager's monthly salary will be $3,500 in Apriland $4,000 per month thereafter. d. Monthly general andadministrative expenses include $8,000 administrative salaries,$5,000 depreciation, and 0.9% monthly interest on the long-termnote payable. e. The company expects 30% of sales to be for cashand the remaining 70% on credit. Receivables are collected in fullin the month following the sale (none is collected in the month ofthe sale). f. All merchandise purchases are on credit, and nopayables arise from any other transactions. One month's purchasesare fully paid in the next month. g. The minimum ending cashbalance for all months is $50,000. If necessary, the companyborrows enough cash using a short-term note to reach the minimum.Short-term notes require an interest payment of 1% at eachmonth-end (before any repayment). If the ending cash balanceexceeds the minimum, the excess will be applied to repaying theshort-term notes payable balance. h. Dividends of $100,000 are tobe declared and paid in May. i. No cash payments for income taxesare to be made during the second calendar quarter. Income taxeswill be assessed at 35% in the quarter. j. Equipment purchases of$55,000 are scheduled for June. Required Prepare the followingbudgets and other financial information as required: 1. Salesbudget, including budgeted sales for July. 2. Purchases budget, thebudgeted cost of goods sold for each month and quarter, and thecost of the June 30 budgeted inventory. 3. Selling expense budget.4. General and administrative expense budget. 5. Expected cashreceipts from customers and the expected June 30 balance ofaccounts receivable. 6. Expected cash payments for purchases andthe expected June 30 balance of accounts payable. 7. Cash budget.8. Budgeted income statement. 9. Budgeted statement of retainedearnings. 10. Budgeted balance sheet.

Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has done very little in budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming year. You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget. The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter. The interest is 2% per quarter and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash. Insurance for the whole year will be paid in January. Prepare the master budget for the year 2017.
0
Earrings Corp. Earrings Corp.
Balance Sheet Budgeting Assumptions
December 31, 2016
2017 2018
Assets Sales Budget Assumptions Same for all quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2
Current assets: Budgeted sales in pairs of earrings 105,000 50,000 60,000 100,000 135,000 65,000
Cash $ 48,000 Selling price per pair $ 23.50
Accounts receivable 224,000 Percentage of sales collected in the quarter of sale 60%
Raw materials inventory (240,000 grams of silver) 120,000 Percentage of sales collected in the quarter after sale 40%
Finished goods inventory (48,000 pairs of earrings) 480,000
Total current assets $ 872,000 Production Budget Assumptions
Plant and equipment: Percentage of next quarter's sales needed in ending finished goods inventory 40%
Land 50,000
Buildings and equipment 650,000 Direct Materials Budget Assumptions
Accumulated depreciation (330,000) Grams of silver per pair of earring 10
Total Plant and equipment, net 370,000 Cost per gram of silver $ 0.50
Total assets $ 1,242,000 Percentage of next quarter's production needs in ending inventory 20%
Percentage of purchases paid in the quarter of purchase 55%
Liabilities and Stockholders' Equity Percentage of purchases paid in the quarter after purchase 45%
Current liabilities:
Accounts payable $ 93,000 Direct Labor Budget Assumptions
Stockholders' equity: Direct labor-hours required per pair 0.20
Common stock $ 700,000 Direct labor cost per hour $ 12.00
Retained earnings 449,000
Total stockholders' equity 1,149,000 Manufacturing Overhead Budget Assumptions
Total liabilities and stockholders' equity $ 1,242,000 Variable manufacturing overhead per direct labor-hour $ 1.50
Fixed manufacturing overhead excluding depreciation per quarter $ 145,950
Depreciation on factory assets per quarter $ 25,000 $ 30,000 $ 32,000 $ 33,000
Selling and Administrative Expense Budget Assumptions
Variable selling and administrative expense per pair $ 2.80
Fixed selling and administrative expense:
Advertising expense per quarter $ 270,000
Executive salaries per quarter $ 105,000
Insurance expense per quarter $ 48,000 (the whole year's insurance will be paid in January)
Rent expense per quarter $ 240,000
Depreciation on non-factory assets per quarter $ 14,000 $ 16,000 $ 17,000 $ 18,000
Cash Budget Assumptions
Minimum cash balance $ 40,000
Equipment purchases $ 20,000 $ 40,000 $ 15,000 $ 10,000
Dividends per quarter $ 15,000
Interest rate per quarter 2%
Loans can be made and repaid in increments of $10,000
Earrings Corp.
Master Budget
For the Year Ended December 31, 2017
Sales Budget Quarter
1 2 3 4 Year
Budgeted unit sales (in pairs) ? ? ? ? ?
Selling price per unit ? ? ? ? ?
Total sales ? ? ? ? ?
Schedule of Expected Cash Collections
Beginning accounts receivable ? ?
First quarter sales ? ? ?
Second quarter sales ? ? ?
Third quarter sales ? ? ?
Fourth quarter sales ? ?
Total cash collections ? ? ? ? ?
Production Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Add: Desired units of ending finished goods inventory ? ? ? ? ?
Total needs ? ? ? ? ?
Less: Units of beginning finshed goods inventory ? ? ? ? ?
Required production in units ? ? ? ? ?
Direct Materials Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Units of raw materials needed per pair ? ? ? ? ?
Units of raw materials needed to meet production ? ? ? ? ?
Add desired units of ending raw materials inventory ? ? ? 214,000 ?
Total units of raw materials needed ? ? ? ? ?
Less units of beginning raw materials inventory ? ? ? ? ?
Units of raw materias to be purchased ? ? ? ? ?
Cost of raw materials per pound ? ? ? ? ?
Cost of raw materials to be purchased ? ? ? ? ?
Schedule of Expected Cash Disbursements for Purchases of Materials
Beginning accounts payable ? ?
First quarter purchases ? ? ?
Second quarter purchases ? ? ?
Third quarter purchases ? ? ?
Forth quarter purchases ? ?
Total cash disbursements for materials ? ? ? ? ?
Direct Labor Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Direct labor-hours per pair ? ? ? ? ?
Total direct labor-hours needed ? ? ? ? ?
Direct labor cost per hour ? ? ? ? ?
Total direct labor cost ? ? ? ? ?
Manufacturing Overhead Budget Quarter
1 2 3 4 Year
Budgeted direct labor-hours ? ? ? ? ?
Variable manufacturing overhead rate ? ? ? ? ?
Variable manufacturing overhead ? ? ? ? ?
Fixed manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ? ? ? ? ?
Less depreciation on factory assets ? ? ? ? ?
Cash disbursements for manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ?
Budgeted direct labor-hours ?
Predetermined overhead rate for the year 2017 ?
Ending Finished Goods Inventory Budget (absorption costing basis)
Item Quantity Cost Total
Production cost per case:
Direct materials ? grams ? per gram ?
Direct labor ? hours ? per hour ?
Manufacturing overhead ? hours ? per hour ?
Unit product cost ?
Budgeted finished goods inventory:
Ending finished goods inventory in cases ?
Unit product cost ?
Ending finished goods inventory in dollars ?
Selling and Administrative Expense Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Variable selling and administrative expense per pair ? ? ? ? ?
Total variable selling and administrative expense ? ? ? ? ?
Fixed selling and administrative expense per quarter:
Advertising ? ? ? ? ?
Executive salaries ? ? ? ? ?
Insurance ? ? ? ? ?
Rent ? ? ? ? ?
Depreciation on non-factory assets ? ? ? ? ?
Total fixed selling and administrative expense ? ? ? ? ?
Total selling and administrative expense ? ? ? ? ?
Adjustment for prepaid insurance #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
Less depreciation on non-factory assets ? ? ? ? ?
Cash disbursements for selling and administrative expense ? ? ? ? ?
Cash Budget Quarter
1 2 3 4 Year
Beginning cash balance ? ? ? ? ?
Add cash receipts:
Collections from customers ? ? ? ? ?
Total cash available ? ? ? ? ?
Less cash disbursements:
Direct materials ? ? ? ? ?
Direct labor ? ? ? ? ?
Manufacturing overhead ? ? ? ? ?
Selling and administrative ? ? ? ? ?
Equipment purchases ? ? ? ? ?
Dividends ? ? ? ? ?
Total cash disbursements ? ? ? ? ?
Excess (deficiency) of cash available over disbursements ? ? ? ? ?
Financing:
Borrowings (at the beginnings of quarters) $ 50,000.00 $ - ?
Repayments (at end of the year) $ - ? ?
Interest $ (1,000.00) ? ?
Total financing $ 49,000.00 ? ? ? ?
Ending cash balance ? ? ? ? ?

Financial Statement Analysis (Short Answer)




Mugs Company


Comparative Balance Sheet


December 31, 2007 2007 2006



Assets


Cash $25,000 $40,000


Marketable securities 20,000 60,000


Accounts Receivable (net) 40,000 30,000


Inventory 150,000 170,000


Property,plant


and equipment (net) 170,000 200,000


Total Assets $405,000 $500,000



Liabilities and stockholders' equity


Accounts payable $ 25,000 $ 30,000


Bond Interest payable 40,000 90,000


Bonds payable 75,000 160,000


Common Stock 175,000 145,000


Retained earnings 90,000 75,000


Total liabilities and


stockholders' equity $405,000 $500,000







Mugs Company


Income Statement


For the Year Ended 12/31/07


Net Sales $360,000


Cost of goods sold 184,000


Gross profit 176,000


Expenses


Interest Expense $21,000


Selling Expense 30,000


Administrative Expenses 20,000


Total expenses 71,000


Income before income taxes 105,000


Income tax expense 30,000


Net Income $75,000





Additional Information:



Cash dividends of $50,000 were declared and paid in 2007.


Weighted average number of shares of common stock outstandingduring 2007 were 62,000 shares.


Market value of common stock on December 31,2007 was $15 pershare.


Net cash provided by operating activities for 2007 was $65,000.


Using the financial statements and additional information, computethe following ratios for the Mugs Company for 2007. You need tolabel your ratios and show your calculations for maximum credit. (Iknow that's tedious, but it's very difficult to give partial creditfor incorrect answers if I can't see how you made thecalculation.)




1. Current ratio


2. Return on common stockholders' equity


3. Price-earnings ratio


4. Inventory turnover ratio


5. Average days in inventory


6. Receivable turnover


7. Average days to collect receivables


8. Profit margin ratio


9. Payout ratio


10.Return on assets (Points : 20)