Question

The following data relate to the operations of Soper Company, a wholesale distributor of consumer goods as of March 31:

Cash	$	8,000
Accounts receivable		20,000
Inventory		36,000
Building and equipment, net		120,000
Accounts payable		21,750
Common shares		150,000
Retained earnings		12,250

a.	The gross margin is 25% of sales.
b.	Actual and budgeted sales data are as follows:

March (actual)	$	50,000
April	$	60,000
May	$	72,000
June	$	90,000
July	$	48,000

c.	Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
d.	Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
e.	One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
f.	Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets).
g.	Equipment costing $1,500 will be purchased for cash in April.
h.	The company must maintain a minimum cash balance of $4,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. The monthly interest rate is 1%. Interest must be paid at the end of each month based on the total loans outstanding for that month.

   

Required:

Using the data above, complete the following statements and schedules for the second quarter

1.	Schedule of expected cash collections:

       

2-a.	Merchandise purchases budget :

              

2-b.	Schedule of expected cash disbursements for merchandise purchases:

             

3.	Schedule of expected cash disbursements for selling and administrative expenses:

        

4.	Cash budget: (Round your intermediate calculations and final answers to the nearest whole dollar. Also, round up your interest calculations to the next whole dollar amount. Cash deficiency, repayments and interest should be indicated by a minus sign.)

          

5.	Prepare an absorption costing income statement for the quarter ending June 30.

           

6.	Prepare a balance sheet as of June 30.

      

Answer 1

	Solution:
Soper Company
Sales Budget
For the Quarter ended June 30
						April	May	June	Quarter
	Budgeted Sales in Dollars					60000	72000	90000	222000
	Total Budgeted Sales					60000	72000	90000	222000
Soper Company
Expected Cash Collection
For the Quarter ended June 30
						April	May	June	Quarter
	Account Receivable 03/31(40% of 50000)					20000			20000
	April - Sales
	60%	of	60000			36000			36000
	40%	of	60000				24000		24000
	May - Sales
	60%	of	72000				43200		43200
	40%	of	72000					28800	28800
	June - Sales
	60%	of	90000					54000	54000
	Total Cash Collection					56000	67200	82800	206000
Soper Company
Inventory Purchase Budget
For the Quarter ended June 30
						April	May	June	Quarter
	Budgeted Cost of Goods Sold(75% of Sales)					45000	54000	67500	166500
	Add: Desired Ending Inventory(80% of Next Month's COGS)					43200	54000	28800	28800	=48000*0.75*0.8 = 28800
	Total Needs					88200	108000	96300	195300
	Less: Beginning Inventory					36000	43200	54000	36000
	Required Inventory Purchase					52200	64800	42300	159300
Soper Company
Cash Disbursement for Purchase
For the Quarter ended June 30
						April	May	June	Quarter
	March Purchase					21750			21750
	April Purchase(50% of 52200)					26100	26100		52200
	May Purchase(50% 64800)						32400	32400	64800
	June Purchase(50% of 42300)							21150	21150
	Total cash Disbursement for Purchase					47850	58500	53550	159900
	*Account Payable of March - for Purchase of 21150 will be paid in April
Soper Company
Cash Disbursement for operating Expenses
For the Quarter ended June 30
						April	May	June	Quarter
	Rent					2500	2500	2500	7500
	Commission (12% of Sales)					7200	8640	10800	26640
	Other Expenses(6% of Sales)					3600	4320	5400	13320
	Total Cash Disbursement					13300	15460	18700	47460
Soper Company
Cash Budget
For the Quarter ended June 30
						April	May	June	Quarter
	Beginning Cash Balance					8000	4000	4000	8000
	Add: Cash Collection					56000	67200	82800	206000
	Total Cash Available					64000	71200	86800	214000
	Less: Cash Disbursement
		Inventory Purchase				47850	58500	53550	159900
		Operating Expense				13300	15460	18700	47460
		Equipment Purchase				1500	0	0	1500
	Total Cash Disbursement					62650	73960	72250	208860
	Excess/Deficiency					1350	-2760	14550	5140
	Financing:
		Borrowing				2677	6855	0	9532
		Repayments				0	0	-9532	-9532
		Interest				-27	-95	-95	-217
	Total Financing					2650	6760	-9627	-217
	Ending Cash Balance					4000	4000	4923	4923
Soper Company
Budgeted Income Statement
For the Quarter ended June 30
			Sales					222000
			Less:	Cost of Goods Sold				166500
			Gross Margin					55500
			Less:	Operating Expenses				47460
				Depreciation				2700
			Operating Income					5340
			Less:	Interest Expense				217
			Net Income					5123
Hillyard Company
Budgeted Balance Sheet
For the Quarter ended June 30
		Current Assets
			Cash					4923
			Account Receivable(40% of 90000)					36000
			Inventory					28800
		Total Current Assets						69723
		Building and Equipment						118800
		(Beginning 120000+New purchase 1500-Depreciation 2700)
		Total Assets						188523
		Liabilities and Equity
			Account Payable(50% of 42300)					21150
		Equity:
			Common Stock					150000
			Retained Earnings:
				Beginning		12250
			add:	Net Income		5123
				Total		17373
			Less:	Cash Dividend		0		17373
		Total Liability and Equity						188523