Comprehensive Budget; Fill in Schedules Following is certain information relative to the position and business of the Newport Store:

Current assets as of Sept. 30:

Cash on deposit $ 12,000 °

Inventory 63,600 Accounts receivable 10,000 Fixed assets—net eee OO 000m i Current liabilities as of Sept. 30: None JE SE OO Recent and anticipated sales:

September $ 40,000 October 48,000 November 60,000 December 80,000 January 36,000 Credit sales: Sales are 75 percent for cash, and 25 percent on credit. Assume that credit accounts are all collected within 30 days from sale. The accounts receivable on Sept. 30 are the result of the credit sales for September (25 percent of $40,000).

Gross profit averages 30 percent of sales. Purchase discounts are treated on the income statement as “other income” by this company.
Expenses: Salaries and wages average 15 percent of sales; rent 5 percent;
all other expenses, excluding depreciation, 4 percent. Assume that these expenses are disbursed each month. Depreciation is $750 per month.
Purchases: There is a basic inventory of $30,000. The policy is to purchase _=seach month additional inventory in the amount necessary to provide for the following month’s sales. Terms on ‘purchases are 2/10, n/30. Assume that payments are made in the month of purchase, and that all discounts are taken.
Fixtures: In October, $600 is spent for fixtures, and in November, $400 is to be expended for this purpose.
Assume that a minimum cash balance of $8,000 is to be maintained.
Assume that all borrowings are effective at the beginning of the month and all repayments are made at the end of the month of repayment. Interest is paid — only at the time of repaying principal. Interest rate is 6 percent per annum.
On the basis of the facts as given above:
jrequired | 1. Complete Schedule A.

SCHEDULE A BUDGETED MONTHLY DOLLAR RECEIPTS ITEM SEPTEMBER OCTOBER NOVEMBER DECEMBER Total sales $40,000 $48,000 $60,000 $80,000 Credit sales 10,000 12,000 Cash sales Receipts:
Cash sales $36,000 Collections on accounts receivable 10,000 Total $46,000 \——+—> 2 Complete Schedule B. Note that purchases are 70 percent of next month’s sales.
SCHEDULE B BUDGETED MONTHLY CASH DISBURSEMENTS FOR PURCHASES ITEM OCTOBER NOVEMBER DECEMBER TOTAL Purchases $42,000 Less 2% cash discount 840 Disbursements $41,160 | 3. Complete Schedule C.
SCHEDULE C BUDGETED MONTHLY CASH DISBURSEMENTS FOR OPERATING EXPENSES : ITEM 2 OCTOBER NOVEMBER DECEMBER TOTAL Salaries and wages $ 7,200 Rent 2,400 Other expenses 1,920 Total $11,520 | 4. Complete Schedule D.

7. What do you think is the most logical means of arranging the financing needed by Newport Store? Explain.
é Prepare a pro forma income statement for the fourth quarter and a balance sheet as of December 31.
9. Certain simplifications have been introduced in this problem. What complicating factors would be met in a typical business situation?

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