Question

The following data relate to the operations of Gaudreau Company, which distributes consumer goods:

Current assets as of December 31:
Cash............................     $6,000
Accounts receivable............... $36,000
Inventory........................     $9,800
Buildings and equipment, net ......... $110,885
Accounts payable .................. $32,550
Common shares.................... $100,000
Retained earnings .................. $30,135

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

b. Actual and budgeted sales data are as follows:

December (actual) ...... $60,000
January.............. $70,000
February.............. $80,000
March................ $85,000
April................. $55,000

c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following 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.

e. 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 $6,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan (also in increments of $1,000) plus accumulated interest at the end of the quarter.

Required:

Using the data above:

1. Complete the following schedule:

Schedule of Expected Cash Collections

January February March Quarter
Cash sales $28,000
Credit sales    36,000
Total collections $64,000

2. Complete the following:
Merchandise Purchasing Budget

January February March Quarter
Budgeted cost of goods sold $49,000*
Add desired ending inventory    11,200**
Total needs $60,200
Less beginning inventory      9,800
Required purchases $50,400

* $70,000 sales X 70% - $49,000.
** $80,000 X 70% X 20% - $11,200.

 

3. Schedule of Expected Cash Disbursements - Merchandise Purchases

January February March Quarter
December purchases $32,550* $32,550
January purchases    12,600 $37,800 50,400
February purchases
March purchases   
Total disbursements $45,150 * Beginning balance of the accounts payable

4. Complete the following schedule:

Schedule of Expected Cash Disbursements –
Selling and Administrative Expenses

January February March Quarter
Commissions................. $12,000
Rent .........................     1,800
Other expenses ................     5,600
Total disbursements ............ $19,400

 

5. Complete the following cash budget:

January February March Quarter
Cash balance, beginning ......... $ 6,000
Add cash collections ............ 64,000
Total cash available ............. 70,000
Less cash disbursements:
For inventory ................ 45,150
For operating expenses ........ 19,400
For equipment ...............    3,000
Total cash disbursements ........ 67,550
Excess (deficiency) of cash ........$ 2,450
Financing
Etc.

6. Prepare an absorption costing income statement, similar to the one shown in
Schedule 9, for the quarter ended March 31.

7. Prepare a balance sheet as of March 31.

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four parts should be answered. kindly take note of it.

Part 1

Schedule of Expected Cash Collections
	January	February	March	Quarter
Cash sales (current month’s sales *40%)	28000	32000	34000	94000
Credit sales (last month’s sales *60%)	36000	42000	48000	126000
Total collections	$64000	$74000	$82000	$220000

Part 2

Merchandise Purchasing Budget
	January	February	March	Quarter
Budgeted cost of goods sold (sales *70%)	49000	56000	59500	164500
Add desired ending inventory (next month’s sales *70%*20%)	11200	11900	7700	7700
Total needs	60200	67900	67200	172200
Less beginning inventory (current month’s sales *70%*20%)	9800	11200	11900	9800
Required purchases	$50400	$56700	$55300	$162400

Part 3

Schedule of Expected Cash Disbursements - Merchandise Purchases
	January	February	March	Quarter
December purchases	32550			32550
January purchases (50400*1/4, ¾)	12600	37800		50400
February purchases (56700*1/4, ¾)		14175	42525	56700
March purchases   (55300*1/4)			13825	13825
Total disbursements	$45150	$51975	$56350	$153475

Part 4

Schedule of Expected Cash Disbursements - Merchandise Purchases
	January	February	March	Quarter
Commissions	12000	12000	12000	36000
Rent	1800	1800	1800	5400
Other expenses (8%*sales)	5600	6400	6800	18800
Total disbursements	$19400	$20200	$20600	$60200