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Peoples Company manufactures and sells a seasonal product that has peak sales in the third quarter. The following informarion concerns operations for Year 3 (the coming year) and for the first two quarters of year 4 The company sells a single product for $25 a unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit): a. Year 3 Quarters 1 2 3 90,000 140,000 80,000 4 70,000 Year 4 Quarters 1 2 95,000 160,000 Budgeted unit sales b Sales are collected in the following way: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 3, the company's balance sheet showed $420,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored. The company desires an ending inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 2, the company had 50,000 units on hand. c. d. The company purchases merchandise at a cost of $15 a unit. e. Inventory purchases are paid for in the following way: 60% paid in the quarter the purchases are made, and the remaining 40% paid in the following quarter. On january 1, Year 3, the company's balance sheet showed $450,000 in accounts payable for the materials purchases, all of which will be paid for in the first quarter of the year. Quarterly operating expenses are: f. Adverting expense Salaries Sales commissions Rent Utilities Insurance Depreciation $ 500,000 225,000 5% of sales 60,000 20,000 10,000 10,000 g. The company purchased $400,000 of equipment on January 2, 2013 and uses straight line depreciation over 10 years. The balances for these accounta are as follows: Accounts Receivable $ 420,000 Accounts Payable 450,000 Equipment 400,000 Accumulated Depreciation 20.000 Land 65,120 Please use all relevant information for the "Data" sheet. Required: Prepare the following budgets and schedules for the year, showing both quarterly and total amounts. 1. Sales budget and a schedule of expected cash collections. 2. A purchases budget 3. Cash payment schedule 4. A cash budget. Determine any borrowing needed to maintain a cash balance of $50,000. Beginning cash balance $55,000 Loans are made at the beginning of the quarter and paid at the end of the quarter, interest is 6% per year. 5. A budgeted income statement. 6. A budgeted balance sheet. 1 Sales Budget Year 3 quarters 2 3 1 4 Year Budgeted unit sales Selling price per unit Total Sales $ S $ $ - $ Cash Collections Schedule Year 3 quarters 2 3 1 1 4 Year Accounts receivable beginning First quarter Second quarter Third quarter Fourth quarter Total cash collections Calculate the Accounts Receivable Ending Balance: 2 Purchases Budget Year 3 Quarters 2 3 1 4 Year Budgeted unit sales Desired ending inventory Total needs Beginning inventory Required purchases Cost per unit Total purchases Calculate the Merchandise Inventory Ending Balance: 3 Cash Payments Schedule Year 3 Quarters 2 2 1 3 4 Year Accounts payable beginning First quarter Second quarter Third quarter Fourth quarter Total cash paid Calculate the Accounts Payable Ending Balance 4 Cash Budget Year 3 quarters 2 3 1 4 Year Beginning Cash Balance Add: Cash collection from customers Total cash available Less: Cash Disbursements Purchase of inventory Sales commission Advertising Rent Salaries Utilities Insurance Equipment purchases Total disbursements Excess (deficiency) of cash available Financing Borrowings Repayments (including interest) Total finaning Cash balance, ending 5 Peoples Company Budgeted Income Statement For the Year Ending December 31, 20Y3 Sales Cost of Goods Sold Gross Profit Operatingexpenses: Advertising expense Salaries expense Sales commisson expense Rent expense Utilities expense Insurance expense Depreciation expense Interest expense Total Operating expenses Net operating income 6 Peoples Company Budgeted Balance Sheet December 31, 20Y3 Assets Current Assets Cash Accounts receivable Merchandise inventory Total current assets $ Plant Assets Land Equipment Less: Accumulated Depreciation Total Assets Liabilities Current Liabilities Accounts Payable Interest payable Notes payable Total current liabilities Notes payable (long-term) Total Liabilities Stockholders' Equity Common Stock $ 641,336 Paid in capital in excess of par 559,319 Retained Earnings 31,015 Total stockholders' equity Total liabilities and stockholders'equity Budget Problem Solutions 1. Sales budget: $ 9,500,000 2. schedule of expected cash collections: $ 9,482,500 2. A purchases budget: $5,377,500 3. Cash payment schedule: $5,362,500 4. A cash budget: $ 50,910 5. A budgeted income statement: Net Income: $ 12,565 6. A budgeted balance sheet: $ 1,720,015