Developing a Master Budget for a Merchandising Organization Assume Nordstrom prepares budgets quarterly. The following Information is available for use in planning the second quarter budgets for one of its stores (In thousands). NORDSTROM Balance Sheet March 31 Assets Liabilities and Stockholders' Equity Cash $ 2,525 Merchandise purchases payable $2,400 Accounts receivable 2,040 Dividends payable 710 Inventory 3,400 Stockholders' equity 8,005 150 Prepaid Insurance Fixtures 3,000 Total assets $11,115 Total liabilities and equity $11,115 Actual and forecasted sales for selected months in the upcoming year are as follows: Month (in thousands) Sales Revenue January $2,600 February March April 3,600 May 3,800 June 3.500 3,200 July August 4,000 Monthly operating expenses are as follows: Wages and salaries $750 Depreciation 75 Advertising 55 Other costs 350 Cash dividends for the store of $710 thousand are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. The prepaid insurance is for five more months. Cost of goods sold is equal to 60% of sales. Ending Inventories are sufficient for 150% of the next month's cost of sales. Purchases during any given month are paid in full during the following month. Cash sales account for 50% of the revenue. Of the credit sales, 60% are collected in the next month and 40% are collected in the month after. Money can be borrowed and repaid in multiples of $100 thousand at an interest rate of 12% per year. The company desires a minimum cash balance of $2 million on the first of each month. At the time the principal is repaid, Interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed. Part A Part B Part Part D Part E Part F 10.900 (e) Prepare an income statement for each month of the second quarter ending June 30. Only use negative signs to show net losses for Income. NORDSTROMS Budgeted Monthly Income Statements (in thousands) Quarter Ending June 30 April May June Total Sales 3,600 $ 3,800S 3,500 $ Cost of sales 2,160 2,280 2,100 6,540 Gross profit 1,440 1,520 1.400 Operating expenses: Wages and salaries 750 750 750 2.250 Depreciation 75 75 225 Advertising 55 55 165 350 350 350 1.050 Insurance 30 30 30 90 Interest OX (4) X 9x OX Total expenses OX OX OX OX Pre-tax income 180 XS OXS OX OX Other costs Check Developing a Master Budget for a Merchandising Organization Assume Nordstrom prepares budgets quarterly. The following Information is available for use in planning the second quarter budgets for one of its stores (In thousands). NORDSTROM Balance Sheet March 31 Assets Liabilities and Stockholders' Equity Cash $ 2,525 Merchandise purchases payable $2,400 Accounts receivable 2,040 Dividends payable 710 Inventory 3,400 Stockholders' equity 8,005 150 Prepaid Insurance Fixtures 3,000 Total assets $11,115 Total liabilities and equity $11,115 Actual and forecasted sales for selected months in the upcoming year are as follows: Month (in thousands) Sales Revenue January $2,600 February March April 3,600 May 3,800 June 3.500 3,200 July August 4,000 Monthly operating expenses are as follows: Wages and salaries $750 Depreciation 75 Advertising 55 Other costs 350 Cash dividends for the store of $710 thousand are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. The prepaid insurance is for five more months. Cost of goods sold is equal to 60% of sales. Ending Inventories are sufficient for 150% of the next month's cost of sales. Purchases during any given month are paid in full during the following month. Cash sales account for 50% of the revenue. Of the credit sales, 60% are collected in the next month and 40% are collected in the month after. Money can be borrowed and repaid in multiples of $100 thousand at an interest rate of 12% per year. The company desires a minimum cash balance of $2 million on the first of each month. At the time the principal is repaid, Interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed. Part A Part B Part Part D Part E Part F 10.900 (e) Prepare an income statement for each month of the second quarter ending June 30. Only use negative signs to show net losses for Income. NORDSTROMS Budgeted Monthly Income Statements (in thousands) Quarter Ending June 30 April May June Total Sales 3,600 $ 3,800S 3,500 $ Cost of sales 2,160 2,280 2,100 6,540 Gross profit 1,440 1,520 1.400 Operating expenses: Wages and salaries 750 750 750 2.250 Depreciation 75 75 225 Advertising 55 55 165 350 350 350 1.050 Insurance 30 30 30 90 Interest OX (4) X 9x OX Total expenses OX OX OX OX Pre-tax income 180 XS OXS OX OX Other costs Check