Case 2. Annual Budget and Budgeted Financial Statements Solution

1. Sales budget and expected cash collections from inventory sales, 20Y2
	January	February	March	April	May	June	6 months
Accrual-basis sales revenue	400,000	420000	440000	460,000	480,000	500,000	2,7000,000
Cash receipts from sales:
Prior months sales	304,000	320,000	336,000	352,000	368,000	384,000	2,064,000
Current months sales	80,000	84,000	88,000	92,000	96,000	100,000	540,000
Total cash receipts	384,000	404,000	424,000	444,000	464,000	484,000	2,604,000

2. Merchandise purchases budget and expected cash payments for inventory purchases, 20Y2
	January	February	March	April	May	June	6 months
Budgeted COGS	240,000	252,000	264,000	276,000	288,000	300,000	1,620,000
+ Desired ending inventory	126,000	132,000	138,000	144,000	150,000	156,000	156,000
Total inventory needed	366,000	384,000	402,000	420,000	438,000	456,000	1,776,000
- Beginning inventory	120,000	126,000	132,000	138,000	144,000	150,000	120,000
Required inventory purchases	246,000	258,000	270,000	282,000	294,000	306,000	1,656,000
Cash payments for:
Prior months purchases	163,800	172,200	180,600	189,000	197,400	205,800	1,108,800
Current months purchases	73,800	77,400	81,000	84,600	88,200	91,800	496,800
Total cash payments	237,600	249,600	261,600	273,600	285,600	297,600	1,605,600

3. S&A expenses budget and expected cash payments for S&A expenses, 20Y2
	January	February	March	April	May	June	6 months
Accrual-basis S&A expenses	400,000	420,000	440,000	460,000	480,000	500,000	2,700,000
Variable S&A expenses	20,000	21000	22000	23000	24000	25000	135,000
Fixed S&A expenses	70,000	70000	70000	70000	70000	70000	420,000
Total S&A expenses	90,000	91000	92000	93000	94000	95000	555,000
Cash payments for S&A expenses
- Depreciation expense	(10,000)	-10000	-10000	-10000	-10000	-10000	-60000
- Prepaid insurance expense	(3,000)	-3000	-3000	-3000	-3000	-3000	-18,000
Total cash payments	77,000	78000	79000	80000	81000	82000	477,000

4. Cash budget, 20Y2
	January	February	March	April	May	June	6 months
Beginning cash balance	124,000	68400	144800	228200	178600	276000	1,020,000
+ Cash receipts from sales	384,000	404000	424000	444000	464000	484000	2,604,000
Cash payments for:
Inventory purchases step 1	237,600	249600	261600	273600	285600	297600	1605600
S&A expenses step 3	77,000	78000	79000	80000	81000	82000	477000
Capital expenditures	75,000	0	0	75000	0	0	150000
Dividends	50,000	0	0	0	0	0	50000
Income taxes	0	0	0	65,000	0	65000	130,000
Ending cash balance	68,400	144800	228200	178600	276000	315400	1,211,400

Liabilities and Stockholders Equity
Accounts payable		Purchases budget
Common stock		Jan 1 balance
Retained earnings		Jan 1 balance plus net income
Total liabilities and stockholders equity

7. Budgeted statement of cash flows, 20Y2 (6 months)
Cash provided by operating activities
Net income		Income statement
+ Depreciation		S&A expenses budget
Increase in accounts receivable		Comparative balance sheets
Increase in inventory		Comparative balance sheets
+ Decrease in prepaid insurance		Comparative balance sheets
+ Increase in accounts payable		Comparative balance sheets
Total
Cash used in investing activities
Equipment purchases		Cash budget
Cash used in financing activities
Dividends paid		Cash budget
Increase in cash balance

Check figures:

Total budgeted sales revenue is $2,700,000

Total budgeted cash collections are $2,604,000

Total budgeted inventory purchases are $1,656,000

Budgeted cash payments for inventory purchases are $1,605,600

Budgeted cash balance on June 30 is $315,400

Budgeted net income is $395,000

Budgeted total assets on June 30 is $1,775,400

Cash provided by operating activities is $391,400