Accounting

ABC Company, a retailer, prepares its master budget on a quarterly basis.  The following data has been

assembled to assist in preparation of the master for the first quarter.

a.    As of December 31 (the end of the prior quarter), the company’s general ledger showed the

following account balances.

ASSETS                        LIABILITIES AND EQUITY

Cash            $ 48,000                Accounts Payable        $ 93,000
Accounts Receivable     224,000             Capital Stock                        500,000
Inventory           60,000                Retained Earnings          109,000
Buildings and Equipment
(net of depreciation)      370,000

TOTAL ASSETS    $702,000        TOTAL LIABILITIES AND EQUITY    $702,000

b.    Actual sales for December and budgeted sales for the next four months are as follows:

December (actual)                $280,000
January                      400,000
February                      600,000
March                          300,000
April                                 200,000

c.    Sales are 20% for cash and 80% on credit.  All payments on credit sales are collected in the month

following sale.  The accounts receivable at December 31 are a result of December credit sales.

d.    The Company’s gross profit rate is 40% of sales.

e.    Monthly expenses are budgeted as follows:  salaries and wages, $27,000 per month; advertising,

$70,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales.

f.    At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales

needs, stated at cost.

g.    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.

h.    During February, the company will purchase a new copy machine for $1,700 cash.  During March, other

equipment will be purchased for cash at a cost of $84,500.

i.    During January, the company will declare and pay $45,000 in cash dividends.

j.    The company must maintain a minimum cash balance of $30,000.  An open line of credit is available at

a local bank for any borrowing that may be needed during the quarter.  All borrowing is done at the

beginning of the month and all repayments are made at the end of a month.  Borrowings and repayments of

principal must be in multiples of $1,000.  Interest is paid only at the time of payment of principal.  The

annual interest rate is 12%.

REQUIRED:  Using the above data, complete the following:

1.    Schedule of Expected Cash Collections
2.    Inventory Purchases Budget
3.    Schedule of Cash Disbursements for Purchases
4.    Schedule of Cash Disbursements for Expenses
5.    Cash Budget
6.    Income Statement for quarter ending March 31
7.    Balance Sheet as of March 31

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