Question

TOTAL OF (4) QUESTIONS

Bountiful is a merchandising company that retails sporting goods. Your job is to prepare a master budget for Bountiful for the quarter consisting of October, November, and December Year 1. As part of the budgeting process, you will need to complete the following budget schedules for each of the three months of the quarter:

a.Schedule of Cash Payments for Inventory Purchases

b.Cash Budget

c.Pro-forma Income Statement

d.Pro-forma Balance Sheet

The following budget information and assumptions will help you complete this task.

• Bountiful anticipates total sales to be $400,000 for October.

o 35% of sales made each month are cash sales. The rest of sales are made on account (Accounts Receivable).

o Total sales are expected to increase each month by 10%.

o Cash from cash sales is collected immediately (in the month of the sale). All cash from sales made on account is collected in the month following the sale.

o Bountiful predicts that total sales in January of Year 2 will be $300,000.

•Bountiful anticipates Cost of Goods Sold for each month to be 70% of total sales for that month.

o Bountiful requires that ending inventory for each month be 20% of the next month’s expected cost of goods sold.

o Because Bountiful is set to begin operations on October 1st, they did not have any beginning inventory at the beginning of October.

o Bountiful makes all their inventory purchases on account. They will pay for 60% of inventory purchases in the month of purchase, and they will pay for the rest in the month following the purchase

• Selling and Administrative Expenses are as follows:

o Total salaries expense is $32,800 each month, and Bountiful pays this expense in the month it is incurred

o Bountiful has a sales commission expense equal to 4% of total sales for the month. They do not pay their salespeople the commission until the month following

when the sales are made.

o Supplies expense is 3% of total sales for the month and is paid for in the month of the sale.

o Utilities expense is expected to be $1,700 each month. Utilities are not paid until the month after the expense is incurred.

o Depreciation on store fixtures (purchase details described later) is on a straight-line basis and will be $5,500 each month.

o Rent on the store is $15,000 each month and is paid in the month it is incurred.

o Miscellaneous expenses are $800 each month and are paid in the month they are incurred.

•Extra notes on the cash budget

o Because Bountiful is set to begin operations on October 1st, they had no beginning cash balance at the beginning of October.

o On October 1st, Bountiful, Inc. collected $250,000 and issued stock to the owners.

o On October 1st, Bountiful purchased $350,000 worth of store fixtures (depreciation on the fixtures was described previously).

o Bountiful declared and paid a $80,000 cash dividend to stockholders on December 31st,Year 1.

o Bountiful has a policy that requires each month’s ending cash balance to be at least $23,000. Bountiful’s bank requires them to borrow and repay money in increments of $1000. When Bountiful borrows or repays money, they do so on the last day of the month. If Bountiful borrows money, they will pay back as much possible in the months when they exceed the $23,000 cash balance minimum.

o The bank charges Bountiful interest of 1% per month (non-compounding). Bountiful pays the interest at the end of each month when interest is incurred.

TOTAL OF (4) QUESTIONS -

Answer 1

Credit Sale%	65%	Cash Sale %	35%	COGS%	70%
	Sep	Oct	Nov	Dec	Jan
Total Sales		400000	440000	484000	300000
Credit Sales	0	260000	286000	314600	195000
Cost of Goods Sold	0	280000	308000	338800	210000
Cash Collection Budget
		Oct	Nov	Dec	Total
Cash Sales		140000	154000	169400	463400
Collection From Credit Sales					0
Same Month		0	0	0	0
Following Month			260000	286000	546000
					0
Total Collection		140000	414000	455400	1009400
Merchandise Purchase Budget
		Oct	Nov	Dec	Total
Opening Inventory		0	61600	67760
Requirement for the month		280000	308000	338800	926800
Closing Inventory		61600	67760	42000
Total Purchase		341600	314160	313040	968800
Cash Disbursement Budget - For Merchandise
		Oct	Nov	Dec	Total
Cash Purchase		0	0	0	0
Payment for Credit Purchases					0
Same Month		204960	188496	187824	581280
Following Month			136640	125664	262304
					0
Total Payment		204960	325136	313488	843584
Cash Budget
		Oct	Nov	Dec	Total
Opening Cash Balance			23040	23914
Collection from Sales		140000	414000	455400	1009400
- Payment for Merchandise		204960	325136	313488	843584
- Payment for expenses
Salaries		32800	32800	32800	98400
Sales Commission			16000	17600	33600
Supplies		8400	9240	10164	27804
Utilities			1700	1700	3400
Rent		15000	15000	15000	45000
Misc Exp		800	800	800
Dividend				80000	80000
Expense total		57000	75540	158064	290604
Net Cash		-121960	36364	7762	-77834
+Loan		145000		17000
-Loan Re-payment			11000
-Interest Payment			1450	1340
Closing Cash Balance		23040	23914	23422

Income Statement
	Oct	Nov	Dec	Total
Sales	400000	440000	484000	1324000
COGS	280000	308000	338800	926800
Gross Profit	120000	132000	145200	397200
Salaries	32800	32800	32800	98400
Sales Commission	16000	17600	19360	52960
Supplies	8400	9240	10164	27804
Utilities	1700	1700	1700	5100
Rent	15000	15000	15000	45000
Misc Exp	800	800	800	2400
Interest Exp		1450	1340	2790
Depreciation	5500	5500	5500	16500
Net Income	39800	47910	58536	146246
Dividend			80000	80000
Retained Earning				66246