Nordic company, a merchandise company, prepares its master budget on quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

• As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances:

Cash…………………………………………………………… $9,000

Accounts receivable…………………………………… 48,000

Inventory………………………………………………….. 12,600

Building and equipment (net)……………………214,100

Accounts payable……………………………………….                                                        $18,300

Capital stock………………………………………………                                                          190,000

Retained earnings……………………………………….                                                       75,400

$283,700                                                                            $283,700

• actual; sales for march and budgeted sales for April-July are as follows:
• March (actual)………………………………………………………   $60,000
• April……………………………………………………………………… $70,000
• May………………………………………………………………………. $85,000
• June……………………………………………………………………… $90,000
• July………………………………………………………………………. $50,000
• Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at match 31 are a result of March credit sales.
• The company’s gross margin percentage is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
• Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $ 7500 per month; shipping, 6% of sales; advertising, $6,000 per month; other expenses, 4% of sales. Depreciation, including depreciation ion new assets acquired during the quarter, will be $6,000 for the quarter.
• Each month’[s ending inventory should equal 30% of the following month’s cost of goods sold.
• Half of a month’s inventory purchases are paid for in the month of purchase and half in the following month.
• Equivalent purchases during the quarter will be as follows: April, $11,500; and May, $3,000.
• Dividends totaling $3,500 will be declared and paid in June.
• Management wants to maintain a minimum cash balance of $20,000. 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, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as for as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the second quarter:

• Schedule for expected cash collections:
•                                                                             April                    May                   June                    Total    Cash sales                                                       $14,000

Credit sales                                                            48,000

Total collection                                              $62,000

 

• a.  Merchandise purchases budget:
•                                                                            April                    May                     June                    Total

Budgeted cost of goods sold                      $42,000*              $51,000

Add desired ending inventory                     15,000+

Total needs                                                     57, 3000

Less beginning inventory                             12,600

Required purchases                                      $44,700

                               *$70,000 sales * 60% = $42,000.

                               +$51,000 * 30% = $15,300.

                     

        b. Schedule of excepted cash disbursements for merchandise purchases:

                                                                                                April                    May                  June                Total

For March purchases                                          $18,300                                                                   $18,300

For April purchases                                         $22,350              $22,350                                       44,700

For May purchases

For June purchases                                                        

Total cash disbursements for purchases     $40,650

3. Schedule of excepted cash disbursements for selling and administrative expenses:

                                                                                            April                May                 June                  Total

Salaries and wages                                               $7,500

Shipping                                                               4,200

Advertising                                                          6,000

Other expenses                                                  2,800

Total cash disbursements for-                         

Selling and administrative expenses            $20,500

4. Cash budget:

                                                                                            April               May               June             July         Total

             Cash balance, beginning                                 $9,000

Add cash collections                                            62,000

Total cash collections                                      71,000

Less cash disbursements:

     For inventory purchases                           40,650

     For selling and admin expenses              20,500

     For equipment purchases                        11,500

     For dividends                                                          -------

Total cash disbursements                               72,650

Excess (deficiency) of cash financing etc. (1,650)

5. Prepare an absorption costing income statements for the quarter ending June 30 as shown in schedule 9 in the chapter or question.

6. Prepare a balance sheet as of June 30.