Question

The information given below is Bobcats Company’s beginning balance sheet, estimates and policies, and the partially completed Master Budget for January and February. Use the information to answer the 22 Multiple Choice Questions, each asking for a missing number from the Master Budget. Round all your computations to the nearest dollar.

1. Sales are expected to be $80,900 in January, $100,900 in February, and $105,900 in March.
2. All sales are on credit and it collects 20% of all sales in the month of the sale, the remaining 80% in the month after the sale.
3. The cost of goods sold is equal to 40% of sales.
4. The company likes to keep an ending inventory on hand equal to 15% of next month’s cost of goods sold.
5. All purchases of inventory are on account, and the company pays for 60% of all purchases in the month of the purchase, 40% in the month after the purchase.
6. The company pays its sales force a commission equal to 3% of sales.
7. The company also believes that its miscellaneous expense is equal to $500 plus 2% of sales.
8. Rent is $2,000 per month, Supplies are $600 per month, and Depreciation is $1,800 per month.
9. On January 1st, the company purchased an insurance policy covering 24 months for $28,800.
10. All selling and administrative expenses are paid in the month they are incurred except for commissions that are paid in the month after they are earned and the insurance which is paid two year in advance.
11. The company purchased $4,000 of Land on February 18th. They paid cash for the land.
12. Interest on long-term debt is equal to 1% of the beginning balance and is paid each month. The company must maintain a minimum balance in cash of $15,000 and will use any cash surplus to pay down long-term debt. The company borrows cash in $1,000 increments.
13. The company is subject to a 30% income tax rate. The company pays income taxes in the month after they are accrued (expensed).
14. The company’s Board of Directors declared a cash dividend of $950 on January 4th. The dividend will be paid on February 10th.
15. The company had a beginning balance sheet (as of January 1) as follows:

Assets		Liabilities & SE
Current Assets		Current Liabilities
Cash	$16,000	Accounts Payable	$23,500
Accounts Receivable	48,000	Commissions Payable	3,400
Prepaid Insurance	0	Income Taxes Payable	9,275
Inventory	9,600	Dividends Payable	0
Total Current Assets	73,600	Total Current Liabilities	36,175
		Long-term Debt	80,000
Property, Plant & Equipment
Equipment	95,000	Stockholders Equity
Land	8,800	Common Stock	26,225
Accumulated Depreciation	(25,000)	Return Earnings	10,000
Net PPE	78,800	Total SE	36,225
Total Assets	$152,400	Total Liabilities & SE	$152,400

Babcats Company's partically completed master budget is as follows:

Sales Budget

	January	February	March
Credit Sales	$80,900	$100,900	$105,900
Cash Receipts from Customers
From Current Month Credit Sales
From Prior Month Credit Sales
Total Cash Receipts from Customers	(1)

Inventory Purchases Budget

	January	February	March
COGS		$40,360	$42,360
Desired Ending Inventory
Total INventory Needed
Beginning Inventory
Inventory Purchases	(2)
Cash Payments for Inventory Purchases
For Current Month Purchases
For Prior Month Purchases
Total Cash Payments for Inventory Purchases	$40,788	(3)

Selling & Administrative Expenses Budget

	January	February
Variable Selling & Administrative Expenses
Commissions	(4)
Miscellaneous
Total Variable S&A Expenses	4,045	5,045
Fixed Selling & Administrative Expenses
Miscellaneous
Rent	2,000	2,000
Supplies
Depreciation	1,800	1,800
Insurance	(5)
Total Fixed S&A Expenses	$6,100	$6,100
Cash Payments for S&A Expenses
Commissions
Utilities
Advertising
Salaries
Depreciation	(6)
Insurance		(7)
Total Cash Payments for S&A Expenses	$36,918	$7,545

Cash Budget

	January	February
Beginning Cash Balance
Cash Receipts from Customers
Total Cash Available	80,180
Cash Payments
For Inventory Purchases	40,788
For S&A Expenses
For Interest	(8)
For Income Taxes
For Land Purchase
For Dividends
Total Cash Payments	87,781
Surplus (Deficit)	(9)	39,574
Borrowing (Repayment)		(10)
Ending Cash Balance		$ 15,000

Income Statement

	January	February
Sales	$80,900	$100,900
Less: Variable Expenses
COGS
Variable S&A Expenses
Contrinbution Margin		(11)
Less: Fixed Expenses
Fixed S&A Expenses
Interest Expense
Pre-tax Net Income
Income Taxes Expense	11,279	14,510
After-tax Net Income	$26,317	$33,856

Balance Sheet

Assets			Liabilities & SE
Current Assets			Current Liabilities
Cash		(12)	Accounts Payable		(18)
Accounts Receivable		(13)	Commissions Payable	(19)
Prepaid Insurance	(14)		Income Taxes Payable
Inventory		(15)	Dividends Payable	(20)
Total Current Assets			Total Current Liabilities
			Long-term Debt	(21)
Property, Plant & Equipment
Equipment	95,000	95,000	Stockholders Equity
Land		(16)	Common Stock	26,225	26,225
Accumulated Depreciation	(17)		Return Earnings		(22)
Net PPE			Total SE
Total Assets	$190,773	$207,674	Total Liabilities & SE	$190,773	$207,674

(9) What is Total Cash Surplus (Deficit) for January?

multiple choice 9

• $39,574

• $-7,601

• $7,601

• $-11,601

(10) What is Total Net Borrowing (Repayment) for February?

multiple choice 10

• $-39,574

• $24,574

• $23,000

• $-24,574

(11) What is the Contribution Margin for February?

multiple choice 11

• $44,495

• $100,900

• $33,856

• $55,495

(12) What is the balance of Cash on February 28?

multiple choice 12

• $15,000

• $16,000

• $0

• $15,399

Answer 1

Answer 9

Surplus/deficit = Cah avaliable - cash payment =80180 - 87781 = (9) -7601 option 2 is correct

Answer 10

Borrowing / Repayment = Cah surplus - minium cash balance = 39574 - 15000 = (10) -24574 option 4 is correct

Answer 11.

Income Statement

	February
Sales	$100,900
Less: Variable Expenses
COGS	40360
Variable S&A Expenses	5045
Contrinbution Margin	(11)55495

Answer 12.

balance of Cash on February 28 = minimum ending cash balance = $15,000 option 1 is correct