Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Mecca 1 Company, a retailer of specialty wall-papers, prepares a monthly master budget. Data for the September master budget are given below: a. The August
Mecca 1 Company, a retailer of specialty wall-papers, prepares a monthly master budget. Data for the September master budget are given below:
a. The August 31st balance sheet (Actual): | |||||
cash | $38,000 | accounts payable | $133,144 | ||
accounts receivable | 138,000 | ||||
inventory | 52,650 | capital stock | 280,000 | ||
building and equipment (net) | 212,500 | retained earnings | 28,006 |
b. | Actual sales for August and budgeted sales for September, October, and November are given below: | |||
August-Actual | $230,000 | |||
September-Projected | 390,000 | |||
October-Projected | 405,000 | |||
November-Projected | 320,000 | |||
c. | Sales are 40% for cash and 60% on credit. All credit sales are collected in the month following the sale. There are no bad debts. |
d. | The gross margin percentage is 55% of sales. The desired ending inventory is equal to 30% of the following months COGS. One fourth of the purchases are paid for in the month of the purchase and the remaining 75% are purchased on account and paid in full the following month. |
e. | The monthly operating expenses are $110,000 including the monthly depreciation of $12,000 |
f. | In September, Mecca Company will purchase new office equipment for $60,000 cash. The expected useful life of the new equipment is 5 years, with no salvage value. It will be depreciated using the straight-line method. Mecca will start depreciating the equipment in September (full month). |
g. | Dividends of $22,500 and $28,000 will be declared and paid in September and October, respectively. |
h. | The company must maintain a minimum cash balance of $38,000. A line of credit is used to maintain this balance. Borrowing will be made in increments of $1,000. All borrowing is done at the beginning of the month and repayments are made at the end of the month. The annual interest rate is 12%, paid when the loan is repaid ( ignore the accrual of interest). |
Required:
1. Prepare a balance sheet, income statement, and cash budget for the month of September.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started