Inwood Gifts Corporation begins business today, December 31, 2017. Rebecca Ortiz, the president, is trying to prepare

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Inwood Gifts Corporation begins business today, December 31, 2017. Rebecca Ortiz, the president, is trying to prepare the company's master budget for the first three months (January, February, and March) of 2018. Since you are her good friend and an accounting student, Ms. Ortiz asks you to prepare the budget based on the following specifications:
Required
a. January sales are estimated to be $500,000, of which 30 percent will be cash and 70 percent will be credit. The company expects sales to increase at the rate of 10 percent per month. Prepare a sales budget.
b. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.
c. The cost of goods sold is 50 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month's cost of goods sold. The ending inventory of March is expected to be $66,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.
d. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the following month. Prepare a cash payments budget for inventory purchases.
e. Budgeted selling and administrative expenses per month follow:
Salary expense (fixed).....................................$50,000
Sales commissions.....................................8% of sales
Supplies expense.......................................4% of sales
Utilities (fixed) .............................................$3,600
Depreciation on store fixtures (fixed)* ................$10,000
Rent (fixed) ..............................................$ 14,400
Miscellaneous (fixed) .....................................$4,000
*The capital expenditures budget indicates that Inwood will spend $700,000 on January 1 for store fixtures. The fixtures are expected to have a $100,000 salvage value and a five-year (60-month) useful life.
Use this information to prepare a selling and administrative expenses budget.
f. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.
g. The company borrows funds, in increments of $1,000, and repays them in any amount available on the last day of the month. It pays interest of 1.5 percent per month in cash on the last day of the month. For safety, the company desires to maintain a $100,000 cash cushion. The company pays its vendors on the last day of the month. Prepare a cash budget.
h. Prepare a pro forma income statement for the quarter.
i. Prepare a pro forma balance sheet at the end of the quarter.
j. Prepare a pro forma statement of cash flows for the quarter.
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Fundamental Managerial Accounting Concepts

ISBN: 978-1259569197

8th edition

Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds

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