ACC-1B Lecture Notes - Lecture 18: Income Statement

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7 Aug 2020

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Prepare the cash budget and merchandise purchases budget. Planning- the future-oriented part of the planning and control cycle, during which managers set objectives or goals for the future. Implementing- occurs when managers put the plan into action. Controlling- the review part of the cycle in which managers look back to determine whether they met the goals set during the planning phase. If the goals have not been met, managers can take corrective action to improve future results. *when corrective action is taken, the cycle starts over again . Strategic plan- the starting point of the planning process in which the manager states what they want the organization to achieve over the long term. It will then be separated into long-term and short-term objectives, along with the tactics that will be used to achieve them. Long-term objective- a specific goal that managers want to achieve over the long term (5-10 years).

Related Questions

Completing a comprehensive budgeting problemâmanufacturingcompany

The Arthur Tire Company manufactures racing tires for bicycles.Arthur sells tires for $55 each. Arthur is

planning for the next year by developing a master budget byquarters. Arthurâs balance sheet for December

31, 2014, follows:

ARTHUR TIRE COMPANY

Balance Sheet December 31, 2014

Assets

Current Assets:

Cash $ 22,000

Accounts Receivable 22,000

Raw Materials Inventory 3,200

Finished Goods Inventory 7,250

Total Current Assets $ 54,450

Property, Plant, and Equipment:

Equipment 175,000

Less: Accumulated Depreciation (55,000)120,000

Total Assets $ 174,450

Liabilities

Current Liabilities:

Accounts Payable $ 7,500

Stockholders' Equity

Common Stock $ 135,000

Retained Earnings 31,950

Total Stockholders' Equity 166,950

Total Liabilities and Stockholders' Equity $ 174,450

Other data for Arthur Tire Company:

a. Budgeted sales are 800 tires for the first quarter andexpected to increase by 100 tires per quarter. Cash

sales are expected to be 30% of total sales, with the remaining70% sales on account.

b. Finished Goods Inventory on December 31 consists of 250 tiresat $29 each.

c. Desired ending Finished Goods Inventory is 30% of the nextquarterâs sales; first quarter sales for 2016

are expected be 1,200 tires; FIFO inventory costing method isused.

d. Direct materials cost is $16 per tire.

e. Desired ending Raw Materials Inventory is 20% of the nextquarterâs direct materials needed for

production; desired ending inventory for December 31 is $3,000;indirect materials are insignificant and not

considered for budgeting purposes.

f. Each tire requires 0.20 hours of direct labor; direct laborcosts average $20 per hour.

g. Variable manufacturing overhead is $2 per tire.

h. Fixed manufacturing overhead includes $3,000 per quarter indepreciation and $4,820 per quarter for

other costs, such as utilities, insurance, and propertytaxes.

i. Fixed selling and administrative expenses include $10,000 perquarter for salaries; $1,800 per quarter for

rent; $500 per quarter for insurance; and $600 per quarter fordepreciation.

j. Variable selling and administrative expenses include suppliesat 1% of sales.

k. Capital expenditures include $30,000 for new manufacturingequipment, to be purchased and paid in the

first quarter.

l. Cash receipts for sales on account are 50% in the quarter ofthe sale and 50% in the quarter following the

sale; December 31, 2014, Accounts Receivable is received in thefirst quarter of 2015; uncollectible

accounts are considered insignificant and not considered forbudgeting purposes.

m. Direct materials purchases are paid 75% in the quarterpurchased and 25% in the following quarter;

December 31, 2014, Accounts Payable is paid in the first quarterof 2015.

n. Direct labor, manufacturing overhead, and selling andadministrative costs are paid in the quarter

incurred.

o. Income tax expense is projected at $2,000 per quarter and ispaid in the quarter incurred.

p. Arthur desires to maintain a minimum cash balance of $30,000and borrows from the local bank as

needed in increments of $1,000 at the beginning of the quarter;principal repayments are made at the

beginning of the quarter when excess funds are available and inincrements of $1,000; interest is 12% per

year and paid at the beginning of the quarter based on theamount outstanding from the previous quarter.

Requirements

1. Prepare Arthurâs operating budget and cash budget for 2015,by quarter. Required schedules and

budgets include: sales budget, production budget, directmaterials budget, direct labor budget,

manufacturing overhead budget, cost of goods sold budget,selling and administrative expense budget,

cash receipts, cash payments, and cash budget. Manufacturingoverhead costs are allocated based on

direct labor hours.

2. Prepare Arthurâs annual financial budget for 2015, includingbudgeted income statement, budgeted

balance sheet, and budgeted statement of cash flows.

coralotter853

Developing a Master Budget for a Merchandising Organization

(LO3)

Peyton Department Store prepares budgets quarterly. Thefollowing information is available for use in

planning the second quarter budgets for 2014.

PEYTON DEPARTMENT STORE

Balance Sheet

March 31, 2014

Assets Liabilities and Stockholdersï¿½ Equity

Cash ........................... $ 3,000 Accountspayable................. $26,000

Accounts receivable............... 25,000 Dividends payable................ 17,000

Inventory........................ 30,000 Rent payable.................... 2,000

Prepaid insurance................. 2,000 Stockholdersï¿½ equity.............. 40,000

Fixtures......................... 25,000

Total assets...................... $85,000 Total liabilities andequity ........... $85,000

Actual and forecasted sales for selected months in 2014 are asfollows:

Month Sales Revenue

January............................................................$60,000

February...........................................................50,000

March.............................................................40,000

April..............................................................50,000

May...............................................................60,000

June..............................................................70,000

July...............................................................90,000

August............................................................80,000

Monthly operating expenses are as follows:

Wages and salaries.........................................................$25,000

Depreciation...............................................................100

Utilities...................................................................1,000

Rent.....................................................................2,000

Cash dividends of $17,000 are declared during the third month ofeach quarter and are paid during the ?rst

month of the following quarter. Operating expenses, exceptinsurance, rent, and depreciation are paid as

incurred. Rent is paid during the following month. The prepaidinsurance is for ?ve more months. Cost

of goods sold is equal to 50 percent of sales. Endinginventories are suf?cient for 120 percent of the next

monthï¿½s sales. Purchases during any given month are paid in fullduring the following month. All sales

are on account, with 50 percent collected during the month ofsale, 40 percent during the next month, and

10 percent during the month thereafter. Money can be borrowedand repaid in multiples of $1,000 at an

interest rate of 12 percent per year. The company desires aminimum cash balance of $3,000 on the ?rst of

each month. At the time the principal is repaid, interest ispaid on the portion of principal that is repaid. All

borrowing is at the beginning of the month, and all repayment isat the end of the month. Money is never

repaid at the end of the month it is borrowed.

Required

a. Prepare a purchases budget for each month of the secondquarter ending June 30, 2014.

b. Prepare a cash receipts schedule for each month of the secondquarter ending June 30, 2014. Do not

include borrowings.

c. Prepare a cash disbursements schedule for each month of thesecond quarter ending June 30, 2014.

Do not include repayments of borrowings.

d. Prepare a cash budget for each month of the second quarterending June 30, 2014. Include budgeted

borrowings and repayments.

e. Prepare an income statement for each month of the secondquarter ending June 30, 2014.

f. Prepare a budgeted balance sheet as of June 30, 2014-Just need F)

aquamarineclam358

Baird Company is aretail company that specializes in selling outdoor campingequipment. The company is considering opening a new store onOctober 1, 2019. The company president formed a planning committeeto prepare a master budget for the first three months of operation.As budget coordinator, you have been assigned the followingtasks:

Problem 14-23 Part 1

Required

October sales areestimated to be $300,000, of which 40 percent will be cash and 60percent will be credit. The company expects sales to increase atthe rate of 20 percent per month. Prepare a sales budget.

The company expects tocollect 100 percent of the accounts receivable generated by creditsales in the month following the sale. Prepare a schedule of cashreceipts.

The cost of goods soldis 70 percent of sales. The company desires to maintain a minimumending inventory equal to 20 percent of the next monthâs cost ofgoods sold. However, ending inventory of December is expected to be$12,100. Assume that all purchases are made on account. Prepare aninventory purchases budget.

The company pays 80percent of accounts payable in the month of purchase and theremaining 20 percent in the following month. Prepare a cashpayments budget for inventory purchases.

Budgeted selling andadministrative expenses per month follow:


Salary expense(fixed)	$	18,100
Salescommissions		4	% of Sales
Suppliesexpense		2	% of Sales
Utilities(fixed)	$	1,500
Depreciation onstore fixtures (fixed)*	$	4,100
Rent(fixed)	$	4,900
Miscellaneous(fixed)	$	1,300

*The capital expenditures budget indicates that Baird will spend$119,400 on October 1 for store fixtures, which are expected tohave a $21,000 salvage value and a two-year (24-month) usefullife.

Use this informationto prepare a selling and administrative expenses budget.

Utilities and salescommissions are paid the month after they are incurred; all otherexpenses are paid in the month in which they are incurred. Preparea cash payments budget for selling and administrative expenses.

Baird borrows funds, in increments of $1,000, and repaysthem on the last day of the month. Repayments may be made in anyamount available. The company also pays its vendors on the last dayof the month. It pays interest of 2 percent per month in cash onthe last day of the month. To be prudent, the company desires tomaintain a $13,000 cash cushion. Prepare a cashbudget.

Baird borrows funds,in increments of $1,000, and repays them on the last day of themonth. Repayments may be made in any amount available. The companyalso pays its vendors on the last day of the month. It paysinterest of 2 percent per month in cash on the last day of themonth. To be prudent, the company desires to maintain a $13,000cash cushion. Prepare a cash budget. (Any repayments/shortage whichshould be indicated with a minus sign.)

Show less

Cash Budget
	October	November	December
Beginning cash balanceselected answer correct	$53,000selected answer incorrect		$(286,436)
Add: Cash receiptsselected answer correct	120,000selected answer correct	264,000selected answer incorrect	316,800selected answer incorrect
Cash available	173,000	264,000	30,364
Less: Payments
For inventory purchasesselected answer correct	127,680selected answer incorrect	225,456selected answer incorrect	329,008selected answer incorrect
For selling and administrative expensesselected answer correct	30,300selected answer correct	45,000selected answer correct	48,840selected answer correct
Purchase of store fixturesselected answer correct	119,400selected answer correct	not attempted	not attempted
not attempted	277,380selected answer incorrect	270,456selected answer incorrect	377,848selected answer incorrect
Borrowing (repayment)selected answer incorrect	(104,308)selected answer incorrect	7,164selected answer incorrect	(47,244)selected answer incorrect
Total budgeted payments	450,452	548,076	708,452
Payments minus receipts
not attempted	(277,452)	(284,076)	(678,088)
Financing activity
Interest expenseselected answer incorrect	not attempted	(2,360)selected answer incorrect	(11,360)selected answer incorrect
Ending cash balanceselected answer correct	$(277,452)	$(286,436)	$(689,448)

The company pays 80percent of accounts payable in the month of purchase and theremaining 20 percent in the following month. Prepare a cashpayments budget for inventory purchases. (Round your final answersto the nearest whole dollar amounts.)

	October	November	December
Schedule of Cash Payments Budgetfor Inventory Purchases
Payment of current month's accounts payable	$264,000selected answer incorrect	$262,080selected answer incorrect	$254,020selected answer incorrect
Payment for prior month'saccounts payable	not attempted	31,920selected answer incorrect	48,384selected answer incorrect
Total budgeted payments forinventory	$264,000	$294,000	$302,404

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ACC-1B Lecture Notes - Lecture 18: Income Statement

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