MGAB03H3 Lecture Notes - Lecture 10: Earnings Before Interest And Taxes, Income Statement, Retained Earnings
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bacus Company sells its productfor $220 per unit. Its actual and projected sales follow. |
Units | Dollars | |
April (actual) | 9,500 | $2,090,000 |
May (actual) | 2,400 | 528,000 |
June (budgeted) | 6,000 | 1,320,000 |
July (budgeted) | 5,500 | 1,210,000 |
August(budgeted) | 4,000 | 880,000 |
All sales are on credit. Recent experience shows that 24% ofcredit sales is collected in the month of the sale, 46% in themonth after the sale, 24% in the second month after the sale, and6% proves to be uncollectible. The productâs purchase price is $110per unit. All purchases are payable within 12 days. Thus, 60% ofpurchases made in a month is paid in that month and the other 40%is paid in the next month. The company has a policy to maintain anending monthly inventory of 20% of the next monthâs unit sales plusa safety stock of 75 units. The April 30 and May 31 actualinventory levels are consistent with this policy. Selling andadministrative expenses for the year are $1,536,000 and are paidevenly throughout the year in cash. The companyâs minimum cashbalance at month-end is $82,000. This minimum is maintained, ifnecessary, by borrowing cash from the bank. If the balance exceeds$82,000, the company repays as much of the loan as it can withoutgoing below the minimum. This type of loan carries an annual 13%interest rate. On May 31, the loan balance is $48,500, and thecompanyâs cash balance is $82,000. |
References
Section BreakLearning Objective: 23-C2 Describea master budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
2.
value:
1.78 points
Required information
Required: | |
1. | Prepare a table that shows the computation of cash collectionsof its credit sales (accounts receivable) in each of the months ofJune and July. (Omit the "$" & "%" signs in yourresponse.) |
Cash collections of credit sales(accounts receivable) |
From sales in | Total | %Collected | June | July |
April | $ | % | $ | |
May | ||||
$ | ||||
June | ||||
July | ||||
Total collected | $ | $ | ||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
3.
value:
1.78 points
Required information
2. | Prepare a table that shows the computation of budgeted endinginventories (in units) for April, May, June, and July.(Omit the "%" sign in your response.) |
Budgeted ending inventories (inunits) |
April | May | June | July | |
Next monthâsbudgeted sales | ||||
Ratio of inventoryto future sales | % | % | % | % |
Budgeted âbaseâending inventory | ||||
Plus safetystock | ||||
Budgeted endinginventory | ||||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
4.
value:
1.78 points
Required information
3. | Prepare the merchandise purchases budget for May, June, andJuly. Report calculations in units and then show the dollar amountof purchases for each month. (Amounts to be deducted shouldbe indicated with a minus sign. Omit the "$" sign in yourresponse.) |
ABACUS COMPANY Merchandise Purchases Budgets For May, June, and July | |||
May | June | July | |
(Click toselect)Payments on purchasesBudgeted ending inventoryBeginninginventoryBudgeted beginning inventoryBudgeted purchases | |||
(Click toselect)Payments on purchasesAdd: Budgeted salesBudgetedpurchasesDeduct: Budgeted salesBudgeted beginning inventory | |||
Required units ofavailable merchandise | |||
(Click toselect)Budgeted purchases (units)Deduct: Beginning inventoryAdd:Beginning inventoryBudgeted ending inventoryBudgeted sales | |||
(Click toselect)Beginning inventoryBudgeted salesBudgeted beginninginventoryBudgeted purchasesBudgeted ending inventory | |||
(Click toselect)Payments on purchasesBudgeted ending inventoryBeginninginventoryBudgeted salesBudgeted cost per unit | $ | $ | $ |
Budgeted cost ofmerchandise purchases | $ | $ | $ |
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
5.
value:
1.78 points
Required information
4. | Prepare a table showing the computation of cash payments onproduct purchases for June and July.(Round your answers tothe nearest dollar amount. Omit the "$" & "%" signs in yourresponse.) |
Cash payments on productpurchases (for June and July) |
From purchasesin | Total | % Paid | June | July |
May | $ | % | $ | |
June | ||||
$ | ||||
July | ||||
Total Paid | $ | $ | ||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
6.
value:
1.78 points
Required information
5. | Prepare a cash budget for June and July, including any loanactivity and interest expense. Compute the loan balance at the endof each month. (Leave no cells blank - be certain to enter"0" wherever required. Input all amounts as positive values exceptpreliminary cash balance and any repayments to bank which should beindicated by a minus sign. Round intermediate calculations andfinal answers to the nearest dollar amount. Omit the "$" sign inyour response.) |
ABACUS COMPANY Cash Budget June and July | ||
June | July | |
(Click toselect)Additional loan from bankSelling and administrativeexpensesPayments on purchasesBeginning cash balanceInterestexpense | $ | $ |
(Click toselect)Selling and administrative expensesCash receipts fromcustomersPayments on purchasesInterest expenseAdditional loan frombank | ||
Total availablecash | ||
Cashdisbursements | ||
(Click to select)Payments onpurchasesPreliminary cash balanceCash receipts fromcustomersAdditional loan from bankRepayment of loan to bank | ||
(Click to select)Additional loan frombankRepayment of loan to bankCash receipts fromcustomersPreliminary cash balanceSelling and administrativeexpenses | ||
(Click to select)Cash receipts fromcustomersInterest expensePreliminary cash balanceAdditional loanfrom bankRepayment of loan to bank | ||
Total disbursements | ||
(Click toselect)Payments on purchasesInterest expenseCash receipts fromcustomersPreliminary cash balanceSelling and administrativeexpenses | ||
(Click toselect)Payments on purchasesSelling and administrativeexpensesInterest expenseCash receipts from customersAdditional loanfrom bank | ||
(Click toselect)Cash receipts from customersSelling and administrativeexpensesPayments on purchasesInterest expenseRepayment of loan tobank | ||
(Click toselect)Ending cash balancePayments on purchasesPreliminary cashbalanceEnding loan balanceAdditional loan from bank | $ | $ |
(Click toselect)Ending cash balanceEnding loan balancePayments onpurchasesAdditional loan from bankPreliminary cash balance | $ | $ |
Abacus Company sells its productfor $220 per unit. Its actual and projected sales follow. |
Units | Dollars | |
April (actual) | 9,500 | $2,090,000 |
May (actual) | 2,400 | 528,000 |
June (budgeted) | 6,000 | 1,320,000 |
July (budgeted) | 5,500 | 1,210,000 |
August(budgeted) | 4,000 | 880,000 |
All sales are on credit. Recent experience shows that 24% ofcredit sales is collected in the month of the sale, 46% in themonth after the sale, 24% in the second month after the sale, and6% proves to be uncollectible. The productâs purchase price is $110per unit. All purchases are payable within 12 days. Thus, 60% ofpurchases made in a month is paid in that month and the other 40%is paid in the next month. The company has a policy to maintain anending monthly inventory of 20% of the next monthâs unit sales plusa safety stock of 75 units. The April 30 and May 31 actualinventory levels are consistent with this policy. Selling andadministrative expenses for the year are $1,536,000 and are paidevenly throughout the year in cash. The companyâs minimum cashbalance at month-end is $82,000. This minimum is maintained, ifnecessary, by borrowing cash from the bank. If the balance exceeds$82,000, the company repays as much of the loan as it can withoutgoing below the minimum. This type of loan carries an annual 13%interest rate. On May 31, the loan balance is $48,500, and thecompanyâs cash balance is $82,000. |
Required: | |
1. | Prepare a table that shows the computation of cash collectionsof its credit sales (accounts receivable) in each of the months ofJune and July. (Omit the "$" & "%" signs in yourresponse.) |
Cash collections of credit sales(accounts receivable) |
From sales in | Total | %Collected | June | July |
April | $ | % | $ | |
May | ||||
$ | ||||
June | ||||
July | ||||
Total collected | $ | $ | ||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
3.
value:
1.78 points
Required information
2. | Prepare a table that shows the computation of budgeted endinginventories (in units) for April, May, June, and July.(Omit the "%" sign in your response.) |
Budgeted ending inventories (inunits) |
April | May | June | July | |
Next monthâsbudgeted sales | ||||
Ratio of inventoryto future sales | % | % | % | % |
Budgeted âbaseâending inventory | ||||
Plus safetystock | ||||
Budgeted endinginventory | ||||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
4.
value:
1.78 points
Required information
3. | Prepare the merchandise purchases budget for May, June, andJuly. Report calculations in units and then show the dollar amountof purchases for each month. (Amounts to be deducted shouldbe indicated with a minus sign. Omit the "$" sign in yourresponse.) |
ABACUS COMPANY Merchandise Purchases Budgets For May, June, and July | |||
May | June | July | |
(Click toselect)Budgeted purchasesBudgeted ending inventoryPayments onpurchasesBeginning inventoryBudgeted beginning inventory | |||
(Click toselect)Add: Budgeted salesBudgeted beginning inventoryBudgetedpurchasesPayments on purchasesDeduct: Budgeted sales | |||
Required units ofavailable merchandise | |||
(Click toselect)Budgeted ending inventoryDeduct: Beginning inventoryBudgetedpurchases (units)Add: Beginning inventoryBudgeted sales | |||
(Click toselect)Budgeted purchasesBudgeted salesBeginning inventoryBudgetedbeginning inventoryBudgeted ending inventory | |||
(Click toselect)Payments on purchasesBeginning inventoryBudgeted endinginventoryBudgeted cost per unitBudgeted sales | $ | $ | $ |
Budgeted cost ofmerchandise purchases | $ | $ | $ |
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
5.
value:
1.78 points
Required information
4. | Prepare a table showing the computation of cash payments onproduct purchases for June and July.(Round your answers tothe nearest dollar amount. Omit the "$" & "%" signs in yourresponse.) |
Cash payments on productpurchases (for June and July) |
From purchasesin | Total | % Paid | June | July |
May | $ | % | $ | |
June | ||||
$ | ||||
July | ||||
Total Paid | $ | $ | ||
References
eBook & Resources
WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.
Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.
Check my work
6.
value:
1.78 points
Required information
5. | Prepare a cash budget for June and July, including any loanactivity and interest expense. Compute the loan balance at the endof each month. (Leave no cells blank - be certain to enter"0" wherever required. Input all amounts as positive values exceptpreliminary cash balance and any repayments to bank which should beindicated by a minus sign. Round intermediate calculations andfinal answers to the nearest dollar amount. Omit the "$" sign inyour response.) |
ABACUS COMPANY Cash Budget June and July | ||
June | July | |
(Click toselect)Beginning cash balancePayments on purchasesAdditional loanfrom bankSelling and administrative expensesInterest expense | $ | $ |
(Click toselect)Payments on purchasesAdditional loan from bankInterestexpenseSelling and administrative expensesCash receipts fromcustomers | ||
Total availablecash | ||
Cashdisbursements | ||
(Click to select)Repayment of loan tobankPreliminary cash balancePayments on purchasesAdditional loanfrom bankCash receipts from customers | ||
(Click to select)Repayment of loan tobankAdditional loan from bankPreliminary cash balanceSelling andadministrative expensesCash receipts from customers | ||
(Click to select)InterestexpensePreliminary cash balanceCash receipts fromcustomersRepayment of loan to bankAdditional loan from bank | ||
Total disbursements | ||
(Click toselect)Cash receipts from customersInterest expenseSelling andadministrative expensesPreliminary cash balancePayments onpurchases | ||
(Click toselect)Payments on purchasesCash receipts from customersSelling andadministrative expensesInterest expenseAdditional loan frombank | ||
(Click toselect)Interest expensePayments on purchasesSelling andadministrative expensesRepayment of loan to bankCash receipts fromcustomers | ||
(Click toselect)Ending loan balancePayments on purchasesAdditional loan frombankPreliminary cash balanceEnding cash balance | $ | $ |
(Click toselect)Preliminary cash balancePayments on purchasesAdditional loanfrom bankEnding cash balanceEnding loan balance | $ | $ |
The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:
ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017 | |||||||
Assets | |||||||
Cash | $ | 59,000 | |||||
Accounts receivable | 487,500 | ||||||
Raw materials inventory | 93,010 | ||||||
Finished goods inventory | 433,000 | ||||||
Total current assets | 1,072,510 | ||||||
Equipment, gross | 638,000 | ||||||
Accumulated depreciation | (169,000 | ) | |||||
Equipment, net | 469,000 | ||||||
Total assets | $ | 1,541,510 | |||||
Liabilities and Equity | |||||||
Accounts payable | $ | 215,410 | |||||
Short-term notes payable | 31,000 | ||||||
Total current liabilities | 246,410 | ||||||
Long-term note payable | 530,000 | ||||||
Total liabilities | 776,410 | ||||||
Common stock | 354,000 | ||||||
Retained earnings | 411,100 | ||||||
Total stockholdersâ equity | 765,100 | ||||||
Total liabilities and equity | $ | 1,541,510 | |||||
To prepare a master budget for April, May, and June of 2017, management gathers the following information:
Sales for March total 25,000 units. Forecasted sales in units are as follows: April, 25,000; May, 17,000; June, 22,400; and July, 25,000. Sales of 259,000 units are forecasted for the entire year. The productâs selling price is $26.00 per unit and its total product cost is $21.65 per unit.
Company policy calls for a given monthâs ending raw materials inventory to equal 50% of the next monthâs materials requirements. The March 31 raw materials inventory is 4,650 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,900 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
Company policy calls for a given monthâs ending finished goods inventory to equal 80% of the next monthâs expected unit sales. The March 31 finished goods inventory is 20,000 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.60 per direct labor hour. Depreciation of $39,710 per month is treated as fixed factory overhead.
Sales representativesâ commissions are 5% of sales and are paid in the month of the sales. The sales managerâs monthly salary is $4,900.
Monthly general and administrative expenses include $34,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
The company expects 25% of sales to be for cash and the remaining 75% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
All raw materials purchases are on credit, and no payables arise from any other transactions. One monthâs raw materials purchases are fully paid in the next month.
The minimum ending cash balance for all months is $98,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
Dividends of $29,000 are to be declared and paid in May.
No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.
Equipment purchases of $149,000 are budgeted for the last day of June.
Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):
1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.
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