Question

A. On May 1, 2018, Love Corporation declared a $58,600 cash dividend to be paid on May 31 to shareholders of record on May 15.

Required:

Record the events occurring on May 1 and May 31 in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. (Enter any decreases to account balances with a minus sign.)

	LOVE CORPORATION Horizontal Statements Model Balance Sheet Income Statement Statement of Cash Flow Date Assets = Liabilities + Common Stock + Retained Earnings Revenue – Expense = Net Income May 1 = + + – = May 15 = + + – = May 31 = + + – =

B. Adams Company, which sells electric razors, had $350,000 of cost of goods sold during the month of June. The company projects a 9 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $18,000, and the desired ending inventory balance for July is $19,000. Adams pays cash to settle 80 percent of its purchases on account during the month of purchase and pays the remaining 20 percent in the month following the purchase. The accounts payable balance as of June 30 was $38,000.

Required

1. Determine the amount of purchases budgeted for July.

2. Determine the amount of cash payments budgeted for inventory purchases in July.

a. Budgeted purchases

b. Cash payments

Answer 1

Solution A:

LOVE CORPORATION

Horizontal Statements Model

Balance Sheet

Income Statement

Statement of Cash Flow

Date

Assets

=

Liabilities

+

Common Stock

+

Retained Earnings

Revenue

–

Expense

=

Net Income

May 1

=

58600

+

+

- 58600

–

=

May 15

=

+

+

–

=

May 31

-58600

=

- 58600

+

+

–

-58600

FA

Solution B:

Budgeted purchases = July cost of goods sold + ending inventory- beginning inventory

= $350000*109% + $19000 - $18000 = $382,500

Cash payments = accounts payable + July purchase *80% = $38000 + $382500*80% = $344,000