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PROBLEM 7–17B Schedules of Expected Cash Collections and Disbursements [LO2,

LO4, LO8]
CHECK FIGURE
(3) Ending cash balance: $8,800

Ojai Products, a distributor of organic beverages, needs a cash budget for September. The
following information is available:
a. The cash balance at the beginning of September is $12,800.
b. Actual sales for July and August and expected sales for September are as follows:

July August September


Cash sales $ 6,100 $ 4,100 $ 9,500
Sales on account 21,000 26,000 37,000
Total sales 27,100 30,100 46,500

Sales on account are collected over a three-month period as follows: 10% collected in the
month of sale, 65% collected in the month following sale, and 21% collected in the second
month following sale. The remaining 4% is uncollectible.
c. Purchases of inventory will total $25,000 for September. Thirty percent of a month's
inventory purchases are paid for during the month of purchase. The accounts payable
remaining from August's inventory purchases total $16,000, all of which will be paid in
September.
d. Selling and administrative expenses are budgeted at $14,000 for September. Of this amount,
$4,000 is for depreciation.
e. Equipment costing $18,000 will be purchased for cash during September, and dividends
totaling $4,000 will be paid during the month.
f. The company maintains a minimum cash balance of $8,800. An open line of credit is
available from the company’s bank to bolster the cash balance as needed.

Required:
1. Prepare a schedule of expected cash collections for September.
2. Prepare a schedule of expected cash disbursements for inventory purchases for September.
3. Prepare a cash budget for September. Indicate in the financing section any borrowing that
will be needed during September. Assume that any interest will not be paid until the
following month.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-1


PROBLEM 7–18B Cash Budget with Supporting Schedules [LO2, LO4, LO8]
CHECK FIGURE
(1) August collections: $46,080
(3) July ending cash balance: $3,950

Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school
supplies. The company is planning its cash needs for the third quarter. In the past, Skolt
Products has had to borrow money during the third quarter to support peak sales of back-to-
school materials, which occur during August. The following information has been assembled to
assist in preparing a cash budget for the quarter:

a. Budgeted monthly absorption costing income statements for July–October are as follows:

July August September October


Sales $36,000 $66,000 $64,000 $41,000
Cost of goods sold 21,000 39,000 27,000 24,000
Gross margin 15,000 27,000 37,000 17,000
Selling and administrative expenses:
Selling expense 6,300 10,500 8,600 8,100
Administrative expense* 3,300 6,300 6,700 6,100
Total selling and administrative expenses 9,600 16,800 15,300 14,200
Net operating income $ 5,400 $10,200 $21,700 $ 2,800
*Includes $1,500 depreciation each month.

b. Sales are 20% for cash and 80% on credit.


c. Credit sales are collected over a three-month period with 20% collected in the month of sale,
50% in the month following sale, and 30% in the second month following sale. May sales
totaled $41,000, and June sales totaled $33,000.
d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory
purchases are paid for in the month of purchase. The remaining 50% is paid in the following
month. Accounts payable for inventory purchases at June 30 total $12,100.
e. The company maintains its ending inventory levels at 65% of the cost of the merchandise to
be sold in the following month. The merchandise inventory at June 30 is $13,650.
f. Land costing $4,500 will be purchased in July.
g. Dividends of $1,600 will be declared and paid in September.
h. The cash balance on June 30 is $3,000; the company must maintain a cash balance of at
least this amount at the end of each month.
i. The company has an agreement with a local bank that allows it to borrow in increments of
$1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest
rate on these loans is 1% per month, and for simplicity, we will assume that interest is not
compounded. The company would, as far as it is able, repay the loan plus accumulated
interest at the end of the quarter.

Required:
1. Prepare a schedule of expected cash collections for July, August, and September and for the
quarter in total.
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prior written consent of McGraw-Hill Education.

Problems Set B 7-2


2. Prepare the following for merchandise inventory:
a. A merchandise purchases budget for July, August, and September.
b. A schedule of expected cash disbursements for merchandise purchases for July, August,
and September and for the quarter in total.
3. Prepare a cash budget for July, August, and September and for the quarter in total.

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the
prior written consent of McGraw-Hill Education.

Problems Set B 7-3


PROBLEM 7–19B Cash Budget with Supporting Schedules; Changing Assumptions
[LO2, LO4, LO8]
CHECK FIGURE
(1) August collections: $51,560
(3) July ending cash balance: $8,600

Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school
supplies. The company is planning its cash needs for the third quarter. In the past, Skolt
Products has had to borrow money during the third quarter to support peak sales of back-to-
school materials, which occur during August. The following information has been assembled to
assist in preparing a cash budget for the quarter:

a. Budgeted monthly absorption costing income statements for July–October are as follows:

July August September October


Sales $41,000 $71,000 $51,000 $46,000
Cost of goods sold 24,000 41,000 26,000 25,000
Gross margin 17,000 30,000 25,000 21,000
Selling and administrative expenses:
Selling expense 7,100 11,700 8,600 7,200
Administrative expense* 5,300 7,000 5,900 5,700
Total selling and administrative expenses 12,400 18,700 14,500 12,900
Net operating income $ 4,600 $11,300 $10,500 $ 8,100
*Includes $1,900 depreciation each month.

b. Sales are 20% for cash and 80% on credit.


c. Credit sales are collected over a three-month period with 15% collected in the month of sale,
65% in the month following sale, and 20% in the second month following sale. May sales
totaled $26,000, and June sales totaled $32,000.
d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory
purchases are paid for in the month of purchase. The remaining 50% is paid in the following
month. Accounts payable for inventory purchases at June 30 total $11,600.
e. The company maintains its ending inventory levels at 20% of the cost of the merchandise to
be sold in the following month. The merchandise inventory at June 30 is $4,800.
f. Land costing $4,100 will be purchased in July.
g. Dividends of $1,400 will be declared and paid in September.
h. The cash balance on June 30 is $8,300; the company must maintain a cash balance of at
least this amount at the end of each month.
i. The company has an agreement with a local bank that allows it to borrow in increments of
$1,000 at the beginning of each month, up to a total loan balance of $44,000. The interest
rate on these loans is 1% per month, and for simplicity, we will assume that interest is not
compounded. The company would, as far as it is able, repay the loan plus accumulated
interest at the end of the quarter.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-4


The company’s president is interested in knowing how reducing inventory levels and collecting
accounts receivable sooner will impact the cash budget. He revises the cash collection and
ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from July,
August, and September are collected over a three-month period with 25% collected in the
month of sale, 55% collected in the month following sale, and 20% in the second month
following sale. Credit sales from May and June are collected during the third quarter using
the collection percentages specified in the main section.
2. The company maintains its ending inventory levels for July, August, and September at 20%
of the cost of merchandise to be sold in the following month. The merchandise inventory at
June 30 remains $4,800 and accounts payable for inventory purchases at June 30 remains
$11,600.

Required:
1. Using the president’s new assumptions in (1) above, prepare a schedule of expected cash
collections for July, August, and September and for the quarter in total.
2. Using the president’s new assumptions in (2) above, prepare the following for merchandise
inventory:
a. A merchandise purchases budget for July, August, and September.
b. A schedule of expected cash disbursements for merchandise purchases for July, August,
and September and for the quarter in total.
3. Using the president’s new assumptions, prepare a cash budget for July, August, September,
and for the quarter in total.
4. Prepare a brief memorandum for the president explaining how his revised assumptions affect
the cash budget.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-5


PROBLEM 7–20B Integration of Sales, Production, and Direct Materials Budgets
[LO2, LO3, LO4]
CHECK FIGURE
(1) August collections: $71,838
(3b) August payments: $59,572

Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now
preparing detailed budgets for the third quarter, July through September, and has assembled
the following information to assist in preparing the budget:

a. The Marketing Department has estimated sales as follows for the remainder of the year (in
pairs of swim fins). The selling price of the swim fins is $13 per pair.

July 5,600 October 3,600


August 6,600 November 2,600
September 4,600 December 2,600

b. All sales are on account. Based on past experience, sales are expected to be collected in the
following pattern:
43% in the month of sale
48% in the month following sale
9% uncollectible.

The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will
be $130,000.
c. The company maintains finished goods inventories equal to 9% of the following month’s
sales. The inventory of finished goods on July 1 will be 504 pairs.
d. Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the
company would like the inventory of geico compound on hand at the end of each month to
be equal to 20% of the following month’s production needs. The inventory of geico
compound on hand on July 1 will be 4,552 pounds.
e. Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month
of purchase; the remainder is paid for in the following month. The accounts payable balance
for geico compound purchases will be $11,800 on July 1.

Required:
1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in
both pairs of swim fins and dollars.) Also prepare a schedule of expected cash collections, by
month and in total, for the third quarter.
2. Prepare a production budget for each of the months July through October.
3. Prepare a direct materials budget for geico compound, by month and in total, for the third
quarter. Also prepare a schedule of expected cash disbursements for geico compound, by
month and in total, for the third quarter.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-6


PROBLEM 7–21B Cash Budget; Income Statement; Balance Sheet [LO2, LO4, LO8,
LO9, LO10]
CHECK FIGURE
(1) Ending cash balance: $37,270

The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is


given below:

Snapshot, Inc.
Balance Sheet
May 31

Assets
Cash ..................................................................... $ 10,350
Accounts receivable ............................................... 69,000
Inventory .............................................................. 34,500
Buildings and equipment, net of depreciation ........... 576,150
Total assets ........................................................... $690,000
Liabilities and Stockholders’ Equity
Accounts payable ................................................... $ 82,800
Note payable ......................................................... 15,180
Capital stock .......................................................... 509,220
Retained earnings .................................................. 82,800
Total liabilities and stockholders’ equity ................... $690,000

The company is in the process of preparing a budget for June and has assembled the following
data:
a. Sales are budgeted at $268,000 for June. Of these sales, $75,000 will be for cash; the
remainder will be credit sales. One-half of a month’s credit sales are collected in the month
the sales are made, and the remainder is collected the following month. All of the May 31
accounts receivable will be collected in June.
b. Purchases of inventory are expected to total $196,000 during June. These purchases will all
be on account. Fifty percent of all inventory purchases are paid for in the month of
purchase; the remainder are paid in the following month. All of the May 31 accounts payable
to suppliers will be paid during June.
c. The June 30 inventory balance is budgeted at $40,000.
d. Selling and administrative expenses for June are budgeted at $30,000, exclusive of
depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the
month.
e. The note payable on the May 31 balance sheet will be paid during June. The company’s
interest expense for June (on all borrowing) will be $600, which will be paid in cash.
f. New warehouse equipment costing $8,000 will be purchased for cash during June.
g. During June, the company will borrow $21,000 from its bank by giving a new note payable
to the bank for that amount. The new note will be due in one year.

Required:
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prior written consent of McGraw-Hill Education.

Problems Set B 7-7


1. Prepare a cash budget for June. Support your budget with a schedule of expected cash
collections from sales and a schedule of expected cash disbursements for inventory
purchases.
2. Prepare a budgeted income statement for June. Use the absorption costing income
statement format as shown in Schedule 9.
3. Prepare a budgeted balance sheet as of June 30.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-8


PROBLEM 7–22B Schedule of Expected Cash Collections; Cash Budget [LO2, LO8]
CHECK FIGURE
(1) July: $264,400
(2) July 31 cash balance: $3,400

Faces Au Natural Corp., a distributor of natural cosmetics, is ready to begin its third quarter, in
which peak sales occur. The company has requested a $52,000, 90-day loan from its bank to
help meet cash requirements during the quarter. Because the company has experienced
difficulty in paying off its loans in the past, the bank’s loan officer has asked the company to
prepare a cash budget for the quarter. In response to this request, the following data have
been assembled:

a. On July 1, the beginning of the third quarter, the company will have a cash balance of
$42,000.
b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales
are on account):

May (actual) $330,000


June (actual) $290,000
July (budgeted) $330,000
August (budgeted) $490,000
September (budgeted) $330,000

Past experience shows that 20% of a month’s sales are collected in the month of sale, 65%
in the month following sale, and 3% in the second month following sale. The remainder is
uncollectible.
c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given
below:

July August September


Merchandise purchases $161,000 $151,000 $161,000
Salaries and wages $68,000 $68,000 $58,000
Advertising $70,000 $80,000 $90,000
Rent payments $28,000 $28,000 $28,000
Depreciation $35,000 $35,000 $35,000

Merchandise purchases are paid in full during the month following purchase. Accounts
payable for merchandise purchases on June 30, which will be paid during July, total
$166,000.
d. Equipment costing $23,000 will be purchased for cash during July.
e. In preparing the cash budget, assume that the $52,000 loan will be made in July and repaid
in September. Interest on the loan will total $1,900.

Required:
1. Prepare a schedule of expected cash collections for July, August, and September and for the
quarter in total.
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prior written consent of McGraw-Hill Education.

Problems Set B 7-9


2. Prepare a cash budget, by month and in total, for the third quarter.
3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan
be repaid as planned? Explain.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-10


PROBLEM 7–23B Schedule of Expected Cash Collections; Cash Budget [LO2, LO8]
CHECK FIGURE
(1) May: $217,480
(2) May ending cash balance: $20,520

Madeleine Bohne, president of the retailer Bohne Products, has just approached the company’s
bank with a request for a $34,000, 90-day loan. The purpose of the loan is to assist the
company in acquiring inventories in support of peak April sales. Because the company has had
some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to
help determine whether the loan should be made. The following data are available for the
months April–June, during which the loan will be used:
a. On April 1, the start of the loan period, the cash balance will be $29,000. Accounts
receivable on April 1 will total $135,000, of which $127,500 will be collected during April and
$5,000 will be collected during May. The remainder will be uncollectible.
b. Past experience shows that 19% of a month’s sales are collected in the month of sale, 74%
in the month following sale, and 4% in the second month following sale. The other 3%
represents bad debts that are never collected. Budgeted sales and expenses for the three-
month period follow:

April May June


Sales (all on account) $206,000 $316,000 $346,000
Merchandise purchases $119,500 $169,500 $149,500
Payroll $9,000 $9,000 $8,000
Lease payments $13,300 $13,300 $13,300
Advertising $71,500 $74,200 $57,200
Equipment purchases $8,600 − −
Depreciation $9,600 $9,600 $9,600

c. Merchandise purchases are paid in full during the month following purchase. Accounts
payable for merchandise purchases on March 31, which will be paid during April, total
$108,200.
d. In preparing the cash budget, assume that the $34,000 loan will be made in April and repaid
in June. Interest on the loan will total $820.

Required:
1. Prepare a schedule of expected cash collections for April, May, and June and for the three
months in total.
2. Prepare a cash budget, by month and in total, for the three-month period.
3. If the company needs a minimum cash balance of $20,000 to start each month, can the loan
be repaid as planned? Explain.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-11


PROBLEM 7–24B Cash Budget with Supporting Schedules [LO2, LO4, LO7, LO8]
CHECK FIGURE
(1a) Third quarter cash collections: $489,000
(3) Third quarter ending cash balance: $38,500

The president of Vacuity, Inc., has just approached the company’s bank seeking short-term
financing for the coming year, Year 2. Vacuity is a distributor of commercial vacuum cleaners.
The bank has stated that the loan request must be accompanied by a detailed cash budget that
shows the quarters in which financing will be needed, as well as the amounts that will be
needed and the quarters in which repayments can be made. To provide this information for the
bank, the president has directed that the following data be gathered from which a cash budget
can be prepared:

a. Budgeted sales and merchandise purchases for Year 2, as well as actual sales and purchases
for the last quarter of Year 1, are as follows:

Merchandise
Sales Purchases
Year 1:
Fourth quarter actual ................... $250,000 $150,000
Year 2:
First quarter estimated ................. $350,000 $230,000
Second quarter estimated ............ $450,000 $280,000
Third quarter estimated ............... $550,000 $340,000
Fourth quarter estimated.............. $430,000 $210,000

b. The company typically collects 48% of a quarter’s sales before the quarter ends and another
50% in the following quarter. The remainder is uncollectible. This pattern of collections is
now being experienced in the actual data for the Year 1 fourth quarter.
c. Some 20% of a quarter’s merchandise purchases are paid for within the quarter. The
remainder is paid in the following quarter.
d. Selling and administrative expenses for Year 2 are budgeted at $85,000 per quarter plus
10% of sales. Of the fixed amount, $15,000 each quarter is depreciation.
e. The company will pay $10,000 in cash dividends each quarter.
f. Land purchases will be made as follows during the year: $86,000 in the second quarter and
$47,500 in the third quarter.
g. The Cash account contained $26,000 at the end of Year 1. The company must maintain a
minimum cash balance of at least $24,000.
h. The company has an agreement with a local bank that allows the company to borrow in
increments of $10,000 at the beginning of each quarter, up to a total loan balance of
$100,000. The interest rate on these loans is 1% per month, and for simplicity, we will
assume that interest is not compounded. The company would, as far as it is able, repay the
loan plus accumulated interest at the end of the year.
i. At present, the company has no loans outstanding.

Required:
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prior written consent of McGraw-Hill Education.

Problems Set B 7-12


1. Prepare the following, by quarter and in total, for Year 2:
a. A schedule of expected cash collections on sales.
b. A schedule of expected cash disbursements for merchandise purchases.
2. Compute the expected cash disbursements for selling and administrative expenses, by
quarter and in total, for Year 2.
3. Prepare a cash budget by quarter and in total for Year 2.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-13


PROBLEM 7–24B Behavioral Aspects of Budgeting [LO1]
There is no alternative problem.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-14


PROBLEM 7–25B Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10]
CHECK FIGURE
(2) May purchases: $52,640
(4) May 31 cash balance: $5,600

The following data relate to the operations of Dillinger Company, a wholesale distributor of
consumer goods:

Current assets as of March 31:


Cash $10,500
Accounts receivable $21,000
Inventory $10,080
Buildings and equipment (net) $140,000
Accounts payable $36,500
Capital stock $40,000
Retained earnings $105,080

a. Gross margin is 30% of sales.


b. Actual and budgeted sales data:

March (actual) $70,000


April $72,000
May $73,000
June $84,000
July $80,000

c. Sales are 70% for cash and 30% on credit. Credit sales are collected in the month following
sale. The accounts receivable at March 31 are the result of March credit sales.
d. Each month’s ending inventory should equal 20% of the following month’s budgeted cost of
goods sold.
e. 25% of a month’s inventory purchases are paid for in the month of purchase; the remainder
is paid for in the following month. The accounts payable at March 31 are a result of March
purchases of inventory.
f. Monthly expenses are as follows: salaries and wages $12,500; rent, $3,600 per month;
other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid
monthly. Depreciation is $1,000 per month (includes depreciation on new assets).
g. Equipment costing $9,000 will be purchased for cash in April.
h. The company must maintain a minimum cash balance of $5,000. 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; borrowing must be in multiples of $1,000. The
annual interest rate is 12%. Interest is paid only at the time of repayment of principal;
figure interest on whole months (1/12, 2/12, and so forth).

Required:

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prior written consent of McGraw-Hill Education.

Problems Set B 7-15


Using the above data:

1. Complete the following schedule:

Schedule of Expected Cash Collections


April May June Quarter
Cash sales
Credit sales
Total collections

2. Complete the following:

Merchandise Purchases Budget


April May June Quarter
Budgeted cost of goods sold* $50,400 $51,100
Add desired ending inventory† 10,220
Total needs 60,620
Less beginning inventory 10,080
Required: purchases $50,540
*For April sales: $72,000 sales × 70% cost ratio = $50,400
†$51,100 × 20% = $10,220

Schedule of Expected Cash Disbursements—Merchandise Purchases


April May June Quarter
March purchases $36,500 $36,500
April purchases 12,635 $37,905 50,540
May purchases
June purchases
Total disbursements $49,135

3. Complete the following:

Schedule of Expected Cash Disbursements—Selling and Administrative


Expenses
April May June Quarter
Salaries and wages $12,500
Rent 3,600
Other expenses 5,760
Total disbursements $21,860

4. Complete the following cash budget:

Cash Budget
April May June Quarter
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prior written consent of McGraw-Hill Education.

Problems Set B 7-16


Cash balance, beginning $10,500
Add cash collections 71,400
Total cash available 81,900
Less cash disbursements ...
For inventory 49,135
For expenses 21,860
For equipment 9,000
Total cash disbursements 79,995
Excess (deficiency) of cash 1,905
Financing:
Etc.

5. Prepare an absorption costing income statement similar to Schedule 9 for the quarter
ending June 30. (Use the functional format in preparing your income statement, as shown
in Schedule 9 in the text.)
6. Prepare a balance sheet as of June 30.

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prior written consent of McGraw-Hill Education.

Problems Set B 7-17


PROBLEM 7–26B Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10]
CHECK FIGURE
(2a) February purchases: $62,244.00
(3) February total disbursements: $58,275.00

Hancock Company, a merchandising company, prepares its master budget on a quarterly basis.
The following data have been assembled to assist in preparation of the master budget for the
second quarter.

a. As of December 31 (the end of the prior quarter), the company’s balance sheet showed the
following account balances:

Cash $ 6,700
Accounts receivable 36,900
Inventory 11,130
Buildings and equipment (net) 120,000
Accounts payable $ 32,880
Common stock 100,000
Retained earnings 41,850
$174,730 $174,730

b. Actual and budgeted sales are as follows:

December (actual) $61,500


January $79,500
February $88,800
March $89,400
April $58,100

c. Sales are 40% for cash and 60% on credit. All payments on credit sales are collected in the
month following the sale. The accounts receivable at December 31 are a result of December
credit sales.
d. The company’s gross margin percentage is 30% of sales. (In other words, cost of goods sold
is 70% of sales.)
e. Each month’s ending inventory should equal 20% of the following month's budgeted cost of
goods sold.
f. One-quarter of a month’s inventory purchases is paid for in the month of purchase; the other
three-quarters is paid for in the following month. The accounts payable at December 31 are
the result of December purchases of inventory.
g. Monthly expenses are as follows: commissions, $12,150; rent, $2,650; other expenses
(excluding depreciation), 8% of sales. Assume that these expenses are paid monthly.
Depreciation is $2,550 for the quarter and includes depreciation on new assets acquired
during the quarter.
g. Equipment will be acquired for cash: $3,830 in January and $8,100 in February.
h. Management would like to maintain a minimum cash balance of $5,000 at the end of each
month. The company has an agreement with a local bank that allows the company to borrow
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prior written consent of McGraw-Hill Education.

Problems Set B 7-18


in increments of $1,000 at the beginning of each month, up to a total loan balance of
$50,000. The interest rate on these loans is 1% per month, and for simplicity, we will
assume that interest is not compounded. The company would, as far as it is able, repay the
loan plus accumulated interest at the end of the quarter.

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

1. Schedule of expected cash collections:

January February March Total


Cash sales $31,800.00
Credit sales 36,900.00
Total collections $68,700.00

2. a. Merchandise purchases budget:

January February March Total


Budgeted cost of goods $55,650.00 * $62,160.00
Add desired ending inventory 12,432.00 †
Total needs 68,082.00
Less beginning inventory 11,130.00
Required purchases $56,952.00

*$79,500.00 sales × 70% = $55,650.00.


†$88,800.00 × 70% × 20% = $12,432.00.

b. Schedule of expected cash disbursements for merchandise purchases:

January February March Total


December purchases $32,880.00 * $32,880.00
January purchases 14,238.00 $42,714.00 56,952.00
February purchases 0.00
March purchases 0.00
Total cash disbursements for purchases $47,118.00

*Beginning balance of the accounts payable.

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

January February March Total


Commissions $12,150.00
Rent 2,650.00
Other expenses 6,360.00
Total cash disbursements for selling
and administrative expenses $21,160.00
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prior written consent of McGraw-Hill Education.

Problems Set B 7-19


4. Cash budget:

January February March Total


Cash balance, beginning $ 6,700.00
Add cash collections 68,700.00
Total cash available 75,400.00
Less cash disbursements:
For inventory 47,118.00
For operating expenses 21,160.00
For equipment 3,830.00
Total cash disbursements 72,108.00
Excess (deficiency) of cash 3,292.00
Financing
Etc.

5. Prepare an absorption costing income statement for the quarter ending March 31 as shown
in Schedule 9 in the chapter.
6. Prepare a balance sheet as of March 31.

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the
prior written consent of McGraw-Hill Education.

Problems Set B 7-20