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CHECK FIGURE (2) May purchases: $52,640 (4) May 31 cash balance: $5,600 The following data relate to the operations of Dillinger Company, a wholesale distributor

CHECK FIGURE

(2) May purchases: $52,640

(4) May 31 cash balance: $5,600

The following data relate to the operations of Dillinger Company, a wholesale distributor of consumer goods:

Current assets as of March 31:

Cash

$10,500

Accounts receivable

$21,000

Inventory

$10,080

Buildings and equipment (net)

$140,000

Accounts payable

$36,500

Capital stock

$40,000

Retained earnings

$105,080

a. Gross margin is 30% of sales.

b. Actual and budgeted sales data:

March (actual)

$70,000

April

$72,000

May

$73,000

June

$84,000

July

$80,000

c. Sales are 70% for cash and 30% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are the result of March credit sales.

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

e. 25% of a months inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable at March 31 are a result of March purchases of inventory.

f. Monthly expenses are as follows: salaries and wages $12,500; rent, $3,600 per month; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $1,000 per month (includes depreciation on new assets).

g. Equipment costing $9,000 will be purchased for cash in April.

h. The company must maintain a minimum cash balance of $5,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth).

Required:

Using the above data:

1. Complete the following schedule:

Schedule of Expected Cash Collections

April

May

June

Quarter

Cash sales

Credit sales

Total collections

2. Complete the following:

Merchandise Purchases Budget

April

May

June

Quarter

Budgeted cost of goods sold*

$50,400

$51,100

Add desired ending inventory

10,220

Total needs

60,620

Less beginning inventory

10,080

Required: purchases

$50,540

*For April sales: $72,000 sales 70% cost ratio = $50,400

$51,100 20% = $10,220

Schedule of Expected Cash DisbursementsMerchandise Purchases

April

May

June

Quarter

March purchases

$36,500

$36,500

April purchases

12,635

$37,905

50,540

May purchases

June purchases

Total disbursements

$49,135

3. Complete the following:

Schedule of Expected Cash DisbursementsSelling and Administrative Expenses

April

May

June

Quarter

Salaries and wages

$12,500

Rent

3,600

Other expenses

5,760

Total disbursements

$21,860

4. Complete the following cash budget:

Cash Budget

April

May

June

Quarter

Cash balance, beginning

$10,500

Add cash collections

71,400

Total cash available

81,900

Less cash disbursements...

For inventory

49,135

For expenses

21,860

For equipment

9,000

Total cash disbursements

79,995

Excess (deficiency) of cash

1,905

Financing:

Etc.

5. Prepare an absorption costing income statement similar to Schedule 9 for the quarter ending June 30. (Use the functional format in preparing your income statement, as shown in Schedule 9 in the text.)

6. Prepare a balance sheet as of June 30.

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