QUESTION $1$

Completing a Master Budget $[$L$02]$

The following data relate to the operations of Lim Corporation, a wholesale distributor of consumer goods:

Current assets as of December $31$:

Cash............................ $$6,000$

Accounts receivable............... $$36,000$

Inventory........................ $$9,800$

Buildings and equipment, net $.........$ $$110,885$

Accounts payable $..................$ $$32,550$

Common shares.................... $$100,000$

Retained earnings $..................$ $$30,135$

a$.$ The gross margin is $30\%$ of sales. $($In other words, cost of goods sold is $70\%$ of sales.$)$

b$.$ Actual and budgeted sales data are as follows:

December $($actual$)......$ $$60,000$

January $..............$ $$70,000$

February.............. $$80,000$

March................ $$85,000$

April $.................$ $$55,000$

c$.$ Sales are $40\%$ for cash and $60\%$ on credit. Credit sales are collected in the month following sale. The accounts receivable at December $31$ are the result of December credit sales.

d$.$ Each month's ending inventory should equal $20\%$ of the following month's budgeted cost of goods sold.

e$.$ One$-$quarter of a month's inventory purchases is paid for in the month of purchase; the other three$-$quarters is paid for in the following month. The accounts payable at December $31$ are the result of December purchases of inventory.

f$.$ Monthly expenses are as follows: commissions, $$12,000$; rent, $$1,800$; other expenses $($excluding depreciation$),8\%$ of sales. Assume that these expenses are paid monthly. Depreciation is $$2,400$ for the quarter and includes depreciation on new assets acquired during the quarter.

g$.$ Equipment will be acquired for cash: $$3,000$ in January and $$8,000$ in February.

h$.$ Management would like to maintain a minimum cash balance of $$5,000$ at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $$1,000$ at the beginning of each month, up to a total loan balance of $$50,000.$ 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 far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above:

Complete a Schedule of Expected Cash Collections

Complete a Merchandise Purchasing Budget and a Schedule of Expected Cash Disbursements$-$Merchandise Purchases

Complete a Schedule of Expected Cash Disbursements$-$Selling and Administrative Expenses

Complete a cash budget

Prepare an absorption costing income statement, similar to the one shown in Chapter $9,$ for the quarter ended March $31.$

Prepare a balance sheet as of March $31.$