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Chapter 22: Q57CP (page 1261)

Preparing a financial budget

This problem continues the Piedmont Computer Company situation from Chapter 21. Assume Piedmont Computer began January with \(15,000 cash. Management forecasts that cash receipts from credit customers will be \)48,000 in January and \(51,000 in February. Projected cash payments include equipment purchases (\)20,000 in January and \(41,000 in February) and selling and administrative expenses (\)2,000 each month).

Piedmont Computer Company鈥檚 bank requires a \(26,000 minimum balance in the firm鈥檚 checking account. At the end of any month when the account balance falls below \)26,000, the bank automatically extends credit to the firm in multiples of \(5,000. Piedmont Computer Company borrows as little as possible and pays back loans each month in \)1,000 increments, plus 12% interest on the entire unpaid principal. The first payment occurs one month after the loan.

Requirements

1. Prepare Piedmont Computer Company鈥檚 cash budget for January and February 2020.

2. How much cash will Piedmont Computer Company borrow in February if cash receipts from customers that month total \(41,000 instead of \)51,000?

Short Answer

Expert verified

Leichter Auto Parts will not borrow any amount in February if collections from customers that month total $41,000 instead of $51,000.

Step by step solution

01

Preparation of schedule of cash payments 

January

February

Beginning cash balance

$15,000

$41,000

ADD: Cash received from customers

$48,000

$51,000

Cash available

$63,000

$92,000

LESS: Payments:

Inventory purchase

$20,000

$41,000

Selling and administrative expenses

$2,000

$2,000

Total cash payments

$22,000

$43,000

Ending cash balance before financing

$41,000

$49,000

Financing:

Borrowing

$0

$0

Ending cash balance financing

$41,000

$43,000

02

Sensitivity analysis

February

Beginning cash balance

$41,000

ADD: Cash received from customers

$41,000

Cash available

$82,000

LESS: Payments:

Inventory purchase

$41,000

Selling and administrative expenses

$2,000

Total cash payments

$43,000

Ending cash balance before financing

$39,000

Financing:

Borrowing

$0

Ending cash balance financing

$39,000

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Most popular questions from this chapter

Preparing an operating budget鈥攄irect labor budget Baker Company expects to produce 2,050 units in January and 1,994 units in February. Baker budgets five direct labor hours per unit. Direct labor costs average $9 per hour. Prepare Baker鈥檚 direct labor budget for January and February.

Preparing an operating budget鈥攄irect materials budget

Bell expects to produce 1,800 units in January and 2,155 units in February. The company budgets 3 pounds per unit of direct materials at a cost of $10 per pound. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is 4,950 pounds. Bell desires the ending balance in Raw Materials Inventory to be 20% of the next month鈥檚 direct materials needed for production. Desired ending balance for February is 4,860 pounds. Prepare Bell鈥檚 direct materials budget for January and February.

Preparing a financial budget鈥攕chedule of cash payments

Jefferson Company has budgeted purchases of merchandise inventory of \(457,500 in January and \)533,250 in February. Assume Jefferson pays for inventory purchases 70% in the month of purchase and 30% in the month after purchase. The Accounts Payable balance on December 31 is $98,275. Prepare a schedule of cash payments for purchases for January and February.

Completing a comprehensive budgeting problem鈥攎erchandising company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Alliance Printing Supply鈥檚 controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)16,300 budgeted for cash purchase of equipment.

c. April depreciation expense, \(1,000.

d. Cost of goods sold, 40% of sales.

e. Desired ending inventory for April is \)22,400.

f. April selling and administrative expenses include salaries of \(37,000, 30% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)89,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,600.

j. April purchases of inventory, \)8,600 for cash and $37,400 on account. Half the credit purchases will be paid in April and half in May.

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.

Preparing a financial budget鈥攂udgeted income statement and balance sheet

Buncomb Companyhas the following post-closing trial balance on December 31, 2018:

The company鈥檚 accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales,all on account $ 121,700 Budgeted purchases of merchandise inventory,

all on account 61,200 Budgeted cost of goods sold 60,850 Budgeted selling and administrative expenses: Commissions expense 6,085 Salaries expense 3,000 Rent expense 4,100 Depreciation expense 900 Insurance expense 300 Budgeted cash receipts from customers 126,450 Budgeted cash payments for merchandise inventory 67,925 Budgeted cash payments for salaries and commissions 14,836 Budgeted income tax expense 4,700 Additional information:

Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

Requirements

  1. Prepare a budgeted income statement for the quarter ended March 31, 2019.
  2. 2. Prepare a budgeted balance sheet as of March 31, 2019.
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