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

Schedule of Expected Cash Collections
	April	May	June	Quarter
Cash sales	$36,000	$43,200	$54,000	$133,200
Credit sales*	20,000	24,000	28,800	72,800
Total collections	$56,000	$67,200	$82,800	$206,000
*40% of prior month's sales

2. Merchandise purchases budget

	April	May	June	Quarter
Budgeted cost of goods sold*	$45,000	$54,000	$67,500	$166,500
Add desired ending inventory†	43,200	54,000	28,800	28,800
Total needs	$88,200	$108,000	$96,300	$195,300
Less beginning inventory	36,000	43,200	54,000	36,000
Required purchases	$52,200	$64,800	$42,300	$159,300
*For April sales: $60,000 sales x 75% cost ratio = $45,000.
†$54,000 x 80% = $43,200.

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

	April	May	June	Quarter
For March purchases	$21,750			$21,750
For April purchases	26,100	26,100		52,200
For May purchases
For June purchases
Total cash disbursements for purchases	$47,850

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

	April	May	June	Quarter
Commissions	$7,200
Rent	2,500
Other expenses	3,600
Total disbursements	13,300

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.)

Cash Budget	April	May	June	Quarter
Cash balance, beginning	$8,000			$8,000
Add cash collections	56,000
Total cash available	64,000
Less cash disbursements:
For inventory	47,850
For expenses	13,300
For equipment	1,500
Total cash disbursements	62,650
Excess (deficiency) of cash	1,350
Financing:
Borrowings
Repayments
Interest
Total financing
Cash balance, ending

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

SOPER COMPANY
Income Statement
For the Quarter Ended June 30
Cost of goods sold:
	0
		0
		0
Operating expenses:
		0
		0
		$0

6. Prepare a balance sheet as of June 30.

SOPER COMPANY
Balance Sheet
June 30
Assets
Current assets:
Total current assets
Total assets
Liabilities and Stockholders’ Equity
Stockholders' equity:
Total liabilities and stockholders’ equity

Answer 1

1
Schedule of Expected Cash Collections
	April	May	June	Quarter
Cash Sales	36000	43200	54000	133200
Credit Sales	20000	24000	28800	72800
Total Collections	56000	67200	82800	206000
2
Merchandise Purchases Budget
	April	May	June	Quarter
Budgeted Cost of goods sold	45000	54000	67500	166500
Add:Desired ending inventory	43200	54000	28800	28800
Total Needs	88200	108000	96300	195300
Less: beginning Inventory	36000	43200	54000	36000
Required Purchases	52200	64800	42300	159300
3
Schedule of Expected Cash Disbursements—Merchandise Purchases
	April	May	June	Quarter
March Purchases	21750			21750
April Purchases	26100	26100		52200
May Purchases		32400	32400	64800
June Purchases			21150	21150
Total	47850	58500	53550	159900
Cash Budget
	April	May	June	Quarter
Cash Balance, Beginning	8000	1350	4590	8000
Add:Cash Collections	56000	67200	82800	206000
Total Cash Available	64000	68550	87390	214000
Less: Cash Disbursments
For Inventory	47850	58500	53550	159900
For Expenses	13300	15460	18700	47460
For Equipment	1500	0	0	1500
Total Cash Disbursmenrts	62650	73960	72250	208860
Excess/(Deficiency) of cash	1350	-5410	15140	5140
Financing
Borrowing		10000	0	10000
Repayments			-10000	-10000
Interest			-100	-100
Total Financing	0	10000	-10100	-100
Cash Balance Ending	1350	4590	5040	5040

Schedule of Expected Cash Disbursements—Selling and Administrative Expenses
	April	May	June	Quarter
Commission	7200	8640	10800	26640
Rent	2500	2500	2500	7500
Other Expenses	3600	4320	5400	13320
Total Disbursments	13300	15460	18700	47460

Sooper company Income Statement
Sales		222000
Cost of goods sold
Beginning inventory	36000
add: Purcahses	159300
Goods Available for sale	195300
Less: Ending inventory	28800	166500
Gross margin		55500
Selling and administrative expense
Commission		26640
Rent		7500
Depriciation 900*3		2700
Other Expenses		13320
Net Operating Income		5340
Less: Interest Expense		-100
Net Income		5240

Sooper Company Balance Sheet June 30
Assets
Current Assets
Cash	5040
Accounts Receivable 90000*40%	36000
Inventory	28800
Total Current Assets	69840
Building and equipment- net 120,000+1500-2700	118800
Total Assets	188640
Liabilities And Equity
Accounts Payable	21150
Capital Stock	150000
Retained Earnings	17490
Total Liabiliies and equity	188640