Question
1) Dcor-8 sells specialty paints and wallpaper. As the firms new cost accountant, one of your first jobs is to prepare the monthly master budget
1) Dcor-8 sells specialty paints and wallpaper. As the firms new cost accountant, one of your first jobs is to prepare the monthly master budget for April, based on the information available below:
Dcor-8 Balance Sheet March 31,2015 | |
Assets |
|
Cash | $ 25,500 |
Accounts receivable | 90,000 |
Inventory | 28,800 |
Building and equipment (net) | 200,000 |
Total assets | $344,300 |
Liabilities and Stockholders Equities |
|
Accounts payable | $ 53,760 |
Dividends payable | 13,500 |
Capital stock | 265,000 |
Retained earnings | 12,040 |
Total liabilities and stockholders equities | $344,300 |
The firm had $120,000 of sales for March, and expects budgeted sales of $360,000 (April), $200,000 (May), and $180,000 (June).
Sales are 25% for cash and 75% on credit. All credit sales are collected in the month following the sale. There are no expected bad debts.
The gross margin is 60% of sales. The desired ending inventory is equal to 20% of the following month's sales.
The firm pays for 20% of its merchandise in the month when it is purchased, and the other 80% is paid the following month.
The firm has $80,000 of monthly operating expenses, which includes $7,000 of monthly depreciation expense. All other operating expenses are paid in the month they are incurred.
In April, Dcor-8 will buy new office equipment for $17,000 cash.
Dividends of $13,500 were declared at the end of March, and will be paid in April.
The firm wants to maintain a minimum cash balance of $25,000 at the end of each month, and uses a line of credit to maintain this balance. Any borrowing is made at the beginning of the month in $1,000 increments. The annual interest rate is 12%, and the interest is due when the loan is repaid.
a) Prepare a budgeted income statement for the month of April.
Dcor-8 Budgeted Income Statement For the month ending April 30, 2015 | |
Sales | $360,000 |
Less: Cost of goods sold | 144,000 |
Gross margin | 216,000 |
Less: Operating expenses | 80,000 |
Income before income taxes | 136,000 |
Interest Expense * | 30 |
Income before Income taxes | $135,970 |
b) Prepare a budgeted statement of cash flows for the month of April.
Dcor-8 Budgeted Statement of Cash Flows For the month ending April 30, 2015 | ||
Cash Flows from Operating Activities |
|
|
Net Income |
| $135,970 |
Adjustments to reconcile net income to net cash flows |
|
|
Depreciation | 7,000 |
|
Interest Expense | 30 | 7,030 |
Operating profit before working capital changes |
| 143,000 |
Decrease in inventory | 12,800 |
|
Increase in Accounts Receivable ** | (180,000) |
|
Increase in Account Payable | 51,200 | (116,000) |
Net cash flow from operating activities |
| 27,000 |
|
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|
Cash Flow from Investing Activities |
|
|
Purchase of Office Equipment | (17,000) |
|
Net cash flow from investing activities |
| (17,000) |
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Cash Flow from Financing Activities |
|
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Dividends paid | (13,500) |
|
Loan | 3,000 |
|
Net cash flow from financing activities |
| (10,500) |
Net decrease in cash |
| (500) |
Beginning Cash Balance |
| 25,500 |
Ending Cash Balance |
| $25,000 |
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I WOULD LIKE TO KNOW HOW THE $51,200 INCREASE IN ACCOUNTS PAYABLE WAS CALCULATED.
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