Developing a Master Budget for a Merchandising Organization

Dils Brothers Department Store prepares budgets quarterly. The following information is available for

use in planning the second quarter budgets for 2017.

DILS BROTHERS DEPARTMENT STORE

Balance Sheet

March 31, 2017

AssetsLiabilities and Stockholders Equity

Cash........................$ 4,000Accounts payable..............$31,000

Accounts receivable............31,000Dividends payable .............15,000

Inventory.....................36,000Rent payable .................3,000

Prepaid insurance..............3,000Stockholders equity ...........50,000

Fixtures......................25,000

Total assets...................$99,000Total liabilities and equity........$99,000

Actual and forecasted sales for selected months in 2017 are as follows:

MonthSales Revenue

January........................................................$70,000

February.......................................................60,000

March.........................................................50,000

April ..........................................................60,000

May...........................................................70,000

June ..........................................................80,000

July...........................................................100,000

August ........................................................90,000

Monthly operating expenses are as follows:

Wages and salaries ...................................................$27,000

Depreciation.........................................................100

Utilities .............................................................1,500

Rent ...............

Cash dividends of $15,000 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 deprecia-

tion are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five

more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient

for 120 percent of the next months cost of sales. Purchases during any given month are paid in full

during the following month. All sales are on account, with 50 percent collected during the month of

sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be

borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company

desires a minimum cash balance of $4,000 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.

Required

a. Prepare a purchases budget for each month of the second quarter ending June 30, 2017.

b. Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2017. Do not

include borrowings.

c. Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2017.

Do not include repayments of borrowings.

d. Prepare a cash budget for each month of the second quarter ending June 30, 2017. Include budgeted

borrowings and repayments.

e. Prepare an income statement for each month of the second quarter ending June 30, 2017.

f. Prepare a budgeted balance sheet as of June 30, 2017