Question

ACCT 116 Budget Assignment 2017F Kline Sisters Company operates a gift shop where peak sales and activity occur in the months of December and January. Data regarding the store's operations follow: Sales are budgeted at $360,000 for January, 320,000 for February, and $250,000 for March and $240,000 in April Collections are expected to be 30% in the month of sale, 65% in the month following the sale, 3% in the second month following sale and 2% uncollectible. The cost of goods sold is 76% of sales. The company desires ending merchandise inventory to equal 13% of the following month's cost of goods sold. Payment for merchandise is made 50% in the month of purchase and 50% in the month following the purchase. Monthly operating expenses to be paid in cash are $12,000. Equipment purchases of $40,000 in February and $30,000 in March were paid in cash. Monthly depreciation is $13,000. Dividends of $48,000 were declared and paid in January. Any borrowings must be in $1,000 increments at 12% annual interest. Assume interest accrues at the beginning of the month and is paid at the end of the month. The company must maintain a minimum cash balance of $30,000. Ignore income taxes. All accounts receivable from December 31 will be collected in January and all accounts payable at December 31 will be paid in January. The balance sheet as of December 31st: . . Kline Sisters Company Balance Sheet 12/31/14 Assets: Cash Net Accounts Receivable Merchandise Inventory Property Dlant and Fouinment $22,000 $83,000 $36,000 $1.600.000

Answer 1

Answer-a(i):

March $2,50,000 Total $9,30,000 Sales SCHEDULE OF EXPECTED CASH COLLECTION January February $3,60,000 $3,20,000 Collection: 30% in the month of sale 108000 96000 65% in month following month of sale 234000 3% in second following month Collection from Account receivable 83000 Total expected collection $ 1,91,000 $ 3,30,000 $ 75000 208000 10800 $2,79,000 $4,42,000 $10,800 2,93,800 $ 7,31,800

Answer-a(ii):

Budgeted Account receivable at March 31st = Total sale - total collection = $930,000 - $731,800 = $198,200

Answer-b(i):

MERCHANDISE PURCHASE BUDGET January February $3,60,000 $3,20,000 March $2,50,000 April $2,40,000 Sales Cost of goods sold (76% of sales) 2,73,600 2,43,200 1,90,000 1,82,400 Add:Ending merchandise inventory (13% of following month's COGS) Total merchandise required Less: Beginning merchandise inventory Merchandise to be purchased 31,616 3,05,216 36,000 $2,69,216 24,700 2,67,900 31,616 $2,36,284 23,712 2,13,712 24,700 $1,89,012

Answer-b(ii):

March $1,89,012 Total $6,94,512 SCHEDULE OF EXPECTED CASH DISBURSEMENT January February Merchandise to be purchased $2,69,216 $2,36,284 Payment: 50% in the month of purchase $1,34,608 $1,18,142 50% in the month following month of purchase $1,34,608 Payment to Account payable 190000 Total expected cash disbursement $3,24,608 $2,52,750 $94,506 $1,18,142 $3,47,256 $2,52,750 $2,12,648 $6,00,006

Answer-b(iii):

Budgeted Account payable at March 31st = Total purchase - total payment = $694,512 - $600,006 = $94,506