Question

Mecca Company, a retailer of specialty wall-papers, prepares a monthly master budget. Data for the September master budget are given below: a.

The August 31st balance sheet (Actual): cash $25,000 accounts payable $53,760 accounts receivable 90,000 inventory 28,800 capital stock 278,000 building and equipment (net) 205,000 retained earnings 17,040 b.

Actual sales for August and budgeted sales for September, October, and November are given below: August-Actual $120,000 September 360,000 October 200,000 November 180,000 c.

Sales are 25% for cash and 75% on credit. All credit sales are collected in the month following the sale. There are no bad debts. d.

The gross margin percentage is 60% of sales. The desired ending inventory is equal to 20% of the following month’s COGS. One fifth of the purchases are paid for in the month of the purchase and the remaining 80% are purchased on account and paid in full the following month. e.

The monthly operating expenses are $85,000 including the monthly depreciation of $9,000 f.

During September, Mancini Company will purchase new office equipment for $15,000 cash. Since it was purchased on September 30, no depreciation will be charged on the new equipment in September.

g. Dividends of $16,500 were declared and paid in September. h.

The company must maintain a minimum cash balance of $25,000. A line of credit is used to maintain this balance. Borrowing will be made in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual interest rate is 12%, paid when the loan is repaid ( ignore the accrual of interest). Required:

Prepare a balance sheet, income statement, and cash budget for the month of September.

Answer 1

1.

Mecca Company Budgeted Balance Sheet September 30
Assets
Cash	$ 25,500
Accounts Receivable	270,000
Inventory	16,000
Buildings and Equipment, net	211,000
Total Assets	522,500
Liabilities and Stockholders' Equity
Accounts Payable	104,960
Loan payable	8,000
Capital Stock	278,000
Retained Earnings	131,540
Total Liabilities and Stockholders' Equity	522,500

2.

Mecca Company Budgeted Income Statement For the month ended September 30
Sales	$ 360,000
Cost of Goods Sold	144,000
Gross Profit	216,000
Operating Expenses	85,000
Net Income	131,000

3.

Mecca Company Cash Budget For September
Beginning cash balance		$ 25,000
Add: Cash received from sales		180,000
Total cash available		205,000
Less: Cash disbursements for
Merchandise purchases	80,000
Operating expenses	76,000
Office equipment	15,000
Dividends	16,500
Total cash disbursements		187,500
Cash Surplus ( Deficiency )		17,500
Financing
Borrowing		8,000
Ending cash balance		25,500

Workings:

a.

Schedule of Cash Collection from Sales: September
Cash sales of September	$ 90,000
Credit sales of August	90,000
Total Cash Collections	180,000

b.

Inventory Purchases Budget
	September	October
Cost of Goods Sold ( Budgeted Sales x 40 % )	$ 144,000	$ 80,000
Add: Desired ending inventory	16,000
Total needed	160,000
Less: Beginning inventory	28,800
Budgeted inventory purchases	131,200

c.

Cash disbursements for Inventory Purchases
September purchases	$ 26,240
August purchases	53,760
Total cash disbursements for inventory purchases	$ 80,000