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Chapter 22: Q27E (page 1234)

Preparing a financial budget—schedule of cash payments

Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:

January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500

All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.

Short Answer

Expert verified

Answer

The balances in prepaid property taxes, accounts payable, and utilities payable are $3,330, $4,800, $ 900.

Step by step solution

01

Preparation of schedule of cash receipts

Particulars

January

February

March

Total budgeted merchandise inventory

$3,100

$3,500

$4,800

Cash payments:




Direct materials

$0

$3,100

$3,500

Direct labor cost

$3,300

$3,500

$3,600

Utilities for plant

$0

$650

$650

Property taxes on plant

$200*12 =$2,400

-

-

Utilities for office

$0

$250

$250

Property taxes on office

$170*12 =$2,040

-

-

Office salaries

$3,500

$3,500

$3,500

Total cash payments

$14,340

$14,500

$16,300

02

Calculation of balances in prepaid property taxes, accounts payable, and utilities payable

Prepaid property taxes = (tax on office+ tax on plant)*9

= ($200+$170)*9

= $3,330

Accounts payable =4,800

Utilities payable = Utilities on office+ utilities on plant

= $650 + $250

= $900

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Most popular questions from this chapter

Completing a comprehensive budgeting problem—merchandising 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’s 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.

What are the three sections of the cash budget?

Preparing a financial budget—schedule of cash receipts

Berry expects total sales of \(359,000 in January and \)405,000 in February. Assume that Berry’s sales are collected as follows:

80% in the month of the sale

10% in the month after the sale

6% two months after the sales

4% never collected

November sales totaled \(350,000, and December sales were \)325,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.

Budgeting types Consider the following budgets and budget types.

Cash Cost of Goods Sold

Flexible Master

Operational Sales

Static Strategic

Which budget or budget type should be used to meet the following needs?

a. Upper management is planning for the next five years.

b. A store manager wants to plan for different levels of sales.

c. The accountant wants to determine if the company will have sufficient funds to pay expenses.

d. The CEO wants to make companywide plans for the next year.

Preparing a financial budget—cash budget, sensitivity analysis

Leichter Auto Parts, a family-owned auto parts store, began January with \(10,500 cash. Management forecasts that collections from credit customers will be \)11,000 in January and \(15,200 in February. The store is scheduled to receive \)8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases (\(15,600 in January and \)14,800 in February) and selling and administrative expenses (\(2,900 each month).

Leichter Auto Part'sbank requires a \)10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below \(10,000, the bank automatically extends credit to the store in multiples of \)1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of \(2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Leichter Auto Part'scash budget for January and February.

2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total \)14,200 instead of $15,200?
See all solutions

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