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Mecca 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
Mecca 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 | $42,000 | accounts payable | $133144 | ||
accounts receivable | 138,000 | ||||
inventory | 52,650 | capital stock | 279,000 | ||
building and equipment (net) | 211,500 | retained earnings | 32,006 |
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 $130,000 including the monthly depreciation of $15,000 |
f. | In September, Mecca Company will purchase new office equipment for $48,000 cash. The expected useful life of the new equipment is 4 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 $28,500 and $32,000 will be declared and paid in September and October, respectively. |
h. | The company must maintain a minimum cash balance of $40,000. 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.
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