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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

Cash Flow from Investing Activities

Purchase of Office Equipment

(17,000)

Net cash flow from investing activities

(17,000)

Cash Flow from Financing Activities

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

I

I WOULD LIKE TO KNOW HOW THE $51,200 INCREASE IN ACCOUNTS PAYABLE WAS CALCULATED.

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