Problem 20-8BA Merchandising: Preparation of a complete master budget P4 Isle Corp., a merchandising company, reports the following balance sheet at December 31. ISLE CORPORATION Balance Sheet December 31 Assets Cash $ 36,000 Accounts receivable 525,000 Inventory 150,000 Equipment $540,000 Less: Accumulated depreciation 67,500 472,500 Total assets $1,183,500 Liabilities and Equity Liabilities Accounts payable $360,000 Loan payable 15,000 Taxes payable (due March 15) 90,000 $465,000 Equity Common stock 472,500 Retained earnings 246,000 718.500 Loan payable 15,000 Taxes payable (due March 15). 90,000 $465,000 Equity Common stock Retained earnings Total liabilities and equity 472,500 246,000 718,500 $1,183,500 To prepare a master budget for January, February, and March, use the following information. a. The company's single product is purchased for $30 per unit and resold for $45 per unit. The inventory level of 5,000 units on December 31 is more than management's desired level, which is 25% of the next month's budgeted sales units. Budgeted sales are January, 6,000 units: February, 8,000 units; March, 10,000 units; and April, 9,000 units. All sales are on credit. b. Cash receipts from sales are budgeted as follows: January, $382,500; February, $421,500; March, $355,500. c. Cash payments for merchandise purchases are budgeted as follows: January, $72,000; February, $306,000; March, $123,000. d. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $7,500 per month. e. General and administrative salaries are $12,000 per month. Maintenance expense equals $3,000 per month and is paid in cash. f. New equipment purchases are budgeted as follows: January, $72,000: February, $96,000; and March, $28,800. Budgeted depreciation expense is January, $6,375; February, $7,375; and March, $7,675. g. The company budgets a land purchase at the end of March at a cost of $150,000, which will be paid with cash on March 31. h. The company has a contract with its bank to obtain additional loan] as needed. The interest rate is 1% per month, and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The comparly maintains a minimum ending cash balance of $36,000 at the end of each month. 1. The income tax rate for the company is 40%. Income taxes on the first quarter's income will not be paid until April 15. Required Prepare a master budget for the months of January, February, and March that has the following budgets (round amounts to the nearest dollar). 1. Sales budgets. 2. Merchandise purchases budgets. Check (2) Budgeted purchases: Jan, $90,000, Feb. $255,000 3. Selling expense budgets. 4. General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers. 5. Capital expenditures budgets. 6. Cash budgets. (6) Ending cash bal: Jan, $182.850, Feb, $107.850 7. Budgeted income statement for entire quarter (not monthly) ended March 31. 8. Budgeted balance sheet as of March 31. (8) Budgeted total assets at March 31, $1,346,875 Sales Budget January February March Total Budgeted sales units Selling price per unit Total budgeted sales Merchandise Purchases Budget Budgeted sales units Add: Desired ending inventory Next period budgeted sales Ratio of inventory to future sales Desired ending inventory units Total required units Less: Beginning inventory units Units to purchase Cost per unit Cost of merchandise purchases Selling Expense Budget Budgeted Sales Sales commission percent (20%) Sales Commissions Sales Salaries Total Selling Expenses General and Administrative Expense Budget Administrative salaries Maintenance Depreciation Total gen. and asmin. Expenses January February March Total January February March Total January February March Total Capital Expenditures Budget Equipment Purchases. Land Purchase Total captital expenditures Cash Budget Beginning Cash Balance Add: Cash receipts from sales Total Cash Available Less: Cash payments for Merchandise purchases Sales Commissions Sales Salaries General & Administrative Salaries Maintenance Loan interest Taxes Purchase of Equipment Purchase of land Total Cash Disbursements Preliminary Balance Loan activity Repayment of loan Additional loan. Ending cash balance Loan balance, end of month January February March Total January February March Isle Corporation Budgeted Income Statement For the Quarter ended March 31, 2018 Budgeted Balance Sheet Isle Corporation Budgeted Balance Sheet Cash Accounts receivable Inventory Equipment Assets Less: Accumulated depreciation Land Total Assets Liabilities and Equity Accounts payable Bank loan payable Taxes payable Common stock Retained earnings Total liabilities and equity 31-Mar-18 Cash budget Cash Budget Income Statement