1.Complete a Schedule of Expected Cash Collections 2.Complete a Merchandise Purchasing Budget and a Schedule of Expected Cash Disbursements-Merchandise Purchases 3.Complete a Schedule of Expected Cash Disbursements-Selling and Adminis-trative Expenses 4.Complete a cash budget 5.Prepare an absorption costing income statement, similar to the one shown in Chapter 9, for the quarter ended March 31. 6.Prepare a balance sheet as of March 31.

QUESTION 1 Completing a Master Budget [L02]

The following data relate to the operations of Lim Corporation, a wholesale distributor of consumer goods:

Current assets as of December 31: Cash............................ $6,000 Accounts receivable............... $36,000 Inventory........................ $9,800 Buildings and equipment, net .........$110,885 Accounts payable .................. $32,550 Common shares....................$100,000 Retained earnings .................. $30,135

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

b. Actual and budgeted sales data are as follows:

December (actual) ......$60,000 January ..............$70,000 February..............$80,000 March................$85,000 April .................$55,000

c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.

d. Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold.

e. One-quarter of a month's inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.

f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.

g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.

h. Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above:

1. Complete the following schedule:

Schedule of Expected Cash Collections

JanuaryFebruaryMarchQuarter Cash sales $28,000 Credit sales 36,000 Total collections $64,000 5 Marks 2. Complete the following: Merchandise Purchasing Budget

JanuaryFebruaryMarchQuarter Budgeted cost of goods sold $49,000* Add desired ending inventory 11,200** Total needs $60,200 Less beginning inventory 9,800 Required purchases $50,400

* $70,000 sales X 70% - $49,000. ** $80,000 X 70% X 20% - $11,200. 5 Marks 3. Schedule of Expected Cash Disbursements - Merchandise Purchases

JanuaryFebruaryMarchQuarter December purchases $32,550*$32,550 January purchases 12,600$37,800 50,400 February purchases March purchases Total disbursements $45,150 * Beginning balance of the accounts payable 10 Marks

4. Complete the following schedule:

Schedule of Expected Cash Disbursements Selling and Administrative Expenses

JanuaryFebruaryMarchQuarter Commissions.................$12,000 Rent ......................... 1,800 Other expenses ................ 5,600 Total disbursements ............$19,400

10 Marks

5. Complete the following cash budget:

JanuaryFebruaryMarchQuarter Cash balance, beginning .........$ 6,000 Add cash collections ............ 64,000 Total cash available ............. 70,000 Less cash disbursements: For inventory ................ 45,150 For operating expenses ........ 19,400 For equipment ............... 3,000 Total cash disbursements ........ 67,550 Excess (deficiency) of cash ........$ 2,450 Financing Etc. Follow the format on page 445 of the textbook 10 Marks 6. Prepare an absorption costing income statement, similar to the one shown in Schedule 9, for the quarter ended March 31. 10 Marks

7. Prepare a balance sheet as of March 31. 10 Marks Assignment Grading Rubric (60%) SCORING RUBRIC