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Edmonds Company, a sports specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the

Edmonds Company, a sports specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

Edmonds Company Balance Sheet December 31, 2016
Cash $48,000
Accounts receivable $84,000
Inventory $80,000
Buildings and equipment (net) $490,000 $702,000
Accounts payable $90,000
Common stock $500,000
Retained earnings $112,000 $702,000

Information from marketing regarding sales:

Actual Sales for December were $280,000. Sales Projections for January through April are:

  • January: $400,000
  • February: $500,000
  • March: $300,000
  • April: $200,000

Sales are 70% for cash and 30% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. The companys gross margin is 50% of sales. (In other words, cost of goods sold is 50% of sales.) Monthly expenses are budgeted as follows:

  • salaries and wages, $27,000 per month
  • advertising, $70,000 per month
  • shipping, 5% of sales
  • other expenses, 3% of sales

Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 for the quarter. Each months ending inventory should equal 40% of the following months cost of goods sold. The December 31 ending inventory can be found in the financial statement information above. One-half of a months inventory purchases is paid for in the month of purchase; the other half is paid the following month. The December purchases are the amount of Accounts Payable shown in the financial statement information above.

During February, the company will purchase a new t-shirt making machine for $150,000 cash. During March, other equipment will be purchased for cash at a cost of $90,000. During January, the company will declare and pay $55,000 in cash dividends. Management MUST maintain a minimum cash balance of $30,000. 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. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company - if it is able will repay loans in total.

Prepare the following in good form (meaning clearly labeled) for January, February and March using Excel.

  1. Schedule of Cash Collections (5 points)
  2. A Schedule of Merchandise Purchases (also called Merchandise Purchase Budget) (10 points)
  3. A Schedule of Cash Disbursements for Inventory Purchases (10 points)
  4. A Schedule of Cash Disbursements for Expenses (10 points)
  5. Cash Budget (10 points)
  6. Indicate the amount borrowed and load balance ignoring interest (5 points)

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