Question
Problem 2 (33 Total Points) Snails Mail creates and prints greeting cards. It sells packs of 6 punny cards in each package. The Balance Sheet
Problem 2 (33 Total Points)
Snails Mail creates and prints greeting cards. It sells packs of 6 punny cards in each package. The Balance Sheet for June 30 is as follows:
Cash $ 89,000
Accounts Receivable 550,000
Inventory (12,000 units @ $8) 96,000
Buildings and Equipment, net 665,000
Total Assets $1,400,000
Accounts Payable $ 290,000
Notes Payable -0-
Capital Stock 250,000
Retained Earnings 860,000
Total Liabilities and Equity $1,400,000
The company's sales in units for the next four months have been forecasted as follows:
| July | August | September | October |
Sales in Units | 55,000 | 70,000 | 65,000 | 30,000 |
Packs of cards are sold for $14 each. One fourth of all sales are paid for in the month of sale and the balance is paid for in the following month.
Paper, Ink and other supplies is purchased for $8 per pack of cards. Seventy-five percent of the purchases are paid for in the month of the purchase and the remainder is paid for in the month following purchase. The targeted ending inventory is 20% of the next months needs.
Selling and administrative expenses are expected to total $163,000 each month. Of these expenses, $13,000 is related to depreciation. All cash selling and administrative expenses are paid in the month incurred.
A payment of $450,000 for purchase of equipment is scheduled for August, and a dividend of $150,000 is to be declared and paid in September. Snails Mail Company requires that a minimum cash balance of $70,000 is maintained. The company has a $200,000 line of credit. Assume that borrowing occurs at the beginning of the month and repayment occurs at the end of the month. The annual interest rate is 12% (1% per month). It is Snails Mail policy to pay on the line of credit and any interest owed as soon as possible.
Required: a. Prepare a Merchandise Purchases Budget in units for each of the months July, August, and September include a quarter total column. (14 pts)
Merchandise Purchases Budget | ||||
July | August | September | Quarter | |
Budgeted Sales Units |
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Desired ending inventory |
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Total needs |
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Beg. Inventory |
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Required purchases - units |
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b. Prepare a schedule showing expected cash disbursements for merchandise purchases for each of the months July, August, and September include a quartet total column. (10 pts)
Schedule of Expected Cash Disbursements - Purchases | ||||
July | August | September | Quarter | |
Units to be Purchased |
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Purchase Price |
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Total Purchases |
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June purchases (A/P) |
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July purchases |
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August purchases |
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September purchases |
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Total disbursements |
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c. Using the budgets you prepared in a and b above, answer the following questions:
What amount would be reported on the Balance Sheet as Inventory? (3 pts)
What amount would be reported on the Balance Sheet as Accounts Payable? (3 pts) What amount would be reported on the Income Statement as Cost of Goods Sold? (3 pts)
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