Cute and Cuddly Inc. sells teddy bears in walk-by kiosks in shopping malls. The companys balance sheet

Question:

Cute and Cuddly Inc. sells teddy bears in walk-by kiosks in shopping malls. The company’s balance sheet on March 31, 2010, showed the following balances related to Accounts Receivable and inventories:

Accounts Receivable ..............$346,000

Allowance for doubtful accounts ......... $35,000

Inventory ................... 208,000

Accounts payable to suppliers ...........$455,000

The company’s controller, Brad Jones, is making budget projections for the second quarter of 2010 and has made the following assumptions:

• Budgeted sales: April—60,000 units, May—140,000 units, June—46,000 units

• Selling price per bear—$12

• Cost per bear—$8

• Expected cash collections from 3/31/2010 Accounts Receivable:

In April: ............$36,000

In May: .............295,000

To be written off: .......... 15,000

Other information:

The Accounts Receivable balance at March 31 consists of $36,000 from February sales and $310,000 from March sales. For budgeting purposes, Jones estimates that $36,000 will be collected in April, $295,000 in May, and that the remaining $15,000 will be written off during the second quarter.

Eighty percent of sales are on credit. The remaining sales are cash sales. Twenty-five percent of credit sales are collected in the month of sale, with 55 percent in the month following and 18 percent in the second month following. The remaining 2 percent are uncollectible. The company expects to write off $15,000 of accounts receivable during the second quarter.

Thirty percent of purchases are paid for in the month of purchase with the remainder in the month following.

The company budgets ending inventory equal to 40 percent of the following month’s sales in units. July’s sales are budgeted at 30,000 units.

a. Prepare a sales budget for the quarter ended June 30, 2010.

b. Compute budgeted cash collections for the quarter ending June 30, 2010.

c. Compute budgeted Accounts Receivable at June 30, 2010.

d. Compute the estimated bad debt expense that will appear in the budgeted income statement for the quarter ending June 30, 2010.

e. How would the Accounts Receivable be presented on the budgeted balance sheet at June 30, 2010?

f. Computed budgeted purchases for the quarter ended June 30, 2010.

g. Compute budgeted cash payments for inventory for the quarter ended June 30, 2010.

h. Compute budgeted accounts payable at June 30, 2010.

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