Question

The following data relate to the operations of Lim Corporation, a wholesale distributor of con- sumer goods: Current assets as of December 31: Cash Accounts receivable. Inventory Buildings and equipment, net.. Accounts payable. Common shares Retained earnings $ 6,000 36,000 9,800 110.885 32,550 100,000 30,135 a. b. The gross margin is 30% of sales. Actual and budgeted sales data are as follows: December (actual). January February March April $60,000 70,000 80,000 85,000 55,000 c. e. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month follow- ing sale. The accounts receivable at December 31 are the result of December credit sales. d. Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold. One-quarter of a month's inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory. f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter. g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February. h. Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows it to borrow up to a total loan balance of $50,000. The interest rate on these loans is 0.5% per month, and interest payments must be made at the end of each month. Assume all borrowing occurs at the beginning of a month. The company will, as far as it is able, repay outstanding loans at the end of each month.

Prepare Master Budget

Answer 1

1. Master Budget -

Lim Corporation Master Budget January February March Quarter $ 6,000 $5,650 $ 5,545 $ 6,000 $ 64,000 $ 74,000 $82,000 $220,000 Cash Balance Beginning Add: Cash Receipt Total Cash Available $ 70,000 $ 79,650 $ 87,545 $226,000 Less: Cash Disbursement Inventory Purchase Monthly Expense Equipment Purchase $ 82,950 $ 56,700 $ 55,300 $ 194,950 $ 19,400 $ 20,200 $ 20,600 $ 60,200 $ 3,000$ 8,000 $ 11,000 Total Disbursement $ 105,350 $ 84,900 $ 75,900 $ 266,150 Cash Surplus (Deficit) $ (35,350) $ (5,250) $ 11,645 $ (40,150) Financing Borrowings Payment Interest Total Financing $ 41,000 $ 11,000 $ 52,000 $ (6,000) $ (6,000) $ (205) $ (260) $ (465) $ 41,000 $ 10,795 $ (6,260) $ 45,535 Cash Balance Ending $ 5,650 $ 5,545 $ 5,385 $ 5,385

Working Notes -

Working Notes December January February March April (Actual) $ 60,000 $ 70,000 $80,000 $ 85,000 $ 55,000 Budgeted Sales Cash Sales Credit Sales 40% 60% $ 24,000 $ 28,000 $ 32,000 $ 34,000 $ 22,000 $ 36,000 $ 42,000 $ 48,000 $ 51,000 $ 33,000 Credit Collection $ 36,000 $ 42,000 $ 48,000 $ 51,000 Cost of Goods Sold 70% $ 42,000 $ 49,000 $ 56,000 $ 59,500 $ 38,500 20% Ending Inventory Beginning Inventory $ 9,800 $ 11,200 $ 11,900 $ 7,700 $ 8,400$ 9,800 $ 11,200 $ 11,900 $ 7,700 Purchase $ 43,400 $ 50,400 $ 56,700 $ 55,300 Credit Payments December Payables $ 50,400 $ 56,700 $ 55,300 $ 32,550 Monthly Expenses: Commission Rent Other Expense Depreciation $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 4,800 $ 5,600 $ 6,400 $ 6,800 $ 800 $ 800 $ 800 8% 2400 Equipment Purchase $ 3,000 $ 8,000