Question

Developing a Master Budget
for a Merchandising Organization
Peyton Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2010.

PEYTON DEPARTMENT STORE Balance Sheet March 31, 2010
Assets		Liabilities and Stockholders' Equity
Cash	$4,000	Accounts payable	$26,000
Accounts receivable	25,000	Dividends payable	17,000
Inventory	30,000	Rent payable	3,000
Prepaid Insurance	2,000	Stockholders' equity	40,000
Fixtures	25,000
Total assets	$86,000	Total liabilities and equity	$86,000

Actual and forecasted sales for selected months in 2010 are as follows:

Month	Sales Revenue
January	$40,000
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	$26,000
Depreciation	100
Utilities	1,000
Rent	3,000

Cash dividends of $17,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

Prepare an income statement for each month of the second quarter ending June 30, 2010.

Only use negative signs to show net losses in income.

Peyton Department Store Budgeted Monthly Income Statements Quarter Ending June 30, 2010
	April	May	June	Total
Sales	50000	60000	70000	180000
Cost of sales	25000	30000	35000	90000
Gross profit	25000	30000	35000	90000
Operating expenses:
Wages and salaries	26000	26000	26000	78000
Depreciation	100	100	100	300
Utilities	1000	1000	1000	3000
Rent	3000	3000	3000	9000
Insurance	400	400	400	1200
Interest	270	340	?	?
Total expenses	30770	30840	?	?
Net income	-5770	-840	?	?

Prepare a budgeted balance sheet as of June 30, 2010.

Peyton Department Store Budgeted Balance Sheet June 30, 2010
Assets		Liabilities and Equity
Cash	4000	Merchandise payable	47000
Accounts receivable	41000	Dividend payable	17000
Inventory	54000	Rent payable	3000
Prepaid insurance	800	Loans payable	36000
Fixtures	24700	Interest payable	?
Total assets	124500	Stockholders' equity	?
		Total liab. & equity	124500

Answer 1

Profit and Loss accounts is as follows:-

Peyton Department Store
Budgeted Monthly Income Statements
Quarter Ending June 30, 2010
	April	May	June	Total
Sales	50,000	60,000	70,000	180,000
Cost of sales	25,000	30,000	35,000	90,000
Gross profit	25,000	30,000	35,000	90,000
Operating expenses:
Wages and salaries	26,000	26,000	26,000	78,000
Depreciation	100	100	100	300
Utilities	1,000	1,000	1,000	3,000
Rent	3,000	3,000	3,000	9,000
Insurance	400	400	400	1,200
Interest	270	340	360	970	Refer Working notes
Total expenses	30,770	30,840	30,860	92,470
Net income	(5,770)	(840)	4,140	(2,470)

Balance Sheet and Cash flow statement is as follows:-

Balance Sheets as at the end of the period
	31.3.2019	30.4.2019	31.5.2019	30.6.2019
Cash	4,000.00	4,000.00	4,000.00	4,000.00
Accounts receivable	25,000.00	29,000.00	35,000.00	41,000.00
Inventory	30,000.00	36,000.00	42,000.00	54,000.00
Prepaid Insurance	2,000.00	1,600.00	1,200.00	800.00
Fixtures	25,000.00	24,900.00	24,800.00	24,700.00
Total assets	86,000.00	95,500.00	107,000.00	124,500.00
Accounts payable	26,000.00	31,000.00	36,000.00	47,000.00
Dividends payable	17,000.00			17,000.00
Rent payable	3,000.00	3,000.00	3,000.00	3,000.00
Stockholders' equity	40,000.00	40,000.00	40,000.00	40,000.00
Profit & Loss Account		(5,770.00)	(6,610.00)	(19,470.00)
Interest Payable		270.00	610.00	970.00
Loans Payables		27,000.00	34,000.00	36,000.00
Total liabilities and equity	86,000.00	95,500.00	107,000.00	124,500.00
		-	-	-
Cash flow Statement
Opening Cash flow		4,000.00	4,000.00	4,000.00
Cash flow from Operations		(5,500.00)	(500.00)	-
(Increase)/ Decrease in Current assets		(9,600.00)	(11,600.00)	(17,600.00)
Depreciation added Back		100.00	100.00	100.00
Increase/ (Decrease) in Current Liabilities		5,000.00	5,000.00	28,000.00
Net Cash flow		(10,000.00)	(7,000.00)	10,500.00
Dividend Payment		(17,000.00)
Subtotal		(27,000.00)	(7,000.00)	10,500.00
Closing Cash		4,000.00	4,000.00	4,000.00
Borrowings		27,000.00	7,000.00	(10,500.00)
Interest Accrued		270.00	340.00
Balance Outstnding		27,270.00	7,340.00	(10,500.00)

Working Notes:-

Working of Accounts Receivables
Account Receivable	31.3.2019	30.4.2019	31.5.2019	30.6.2019
Opening Balance		25,000.00	29,000.00	35,000.00
Addition
Sales x 50% of the month		25,000.00	30,000.00	35,000.00
Less
Collection of previous Month (40%)		(16,000.00)	(20,000.00)	(24,000.00)
Collection of Sales 2 months earlier (10%)		(5,000.00)	(4,000.00)	(5,000.00)
Closing Balance		29,000.00	35,000.00	41,000.00
Calculation of Purchase
Opening Stock		30,000.00	36,000.00	42,000.00
Closing Stock		36,000.00	42,000.00	54,000.00
Cost of Goods sold		25,000.00	30,000.00	35,000.00
Purchase		31,000.00	36,000.00	47,000.00