Question 4: Financial Budgeting Jim's Trading Company has been operating a business selling exercise equipment. The company began operations on 1" January with the following assets: Cash $14,000 Inventory $29,000 Land $31,000 Buildings & Equipment $250,000 Annual Depreciation Charge is 15% Sales for Quarter 1 (Jan, Feb & March) are expected to be $150,000 and for Quarter 2 (Apr., May, June) are expected to be $290,000, and for Quarter 3 are forecast at $340,000. Certain expenses are expected to vary with sales as follows: Cost of Goods Sold 60% . . Bad Debts 2% variable selling expenses 14% Variable administration expenses 5% Other Expenses not expected to vary with sales are as follows per quarter: Selling Expense $25,000 per quarter Administration Expense $18,550 per quarter Depreciation $??? per quarter Jim's Trading Company is also preparing a cash budget for the first TWO quarters. In addition to the data above, the following estimates are provided: 75% of sales will be received in the quarter in which the sale is made and 23% in the following quarter. 60% of merchandise purchases will be paid for in the quarter in which the purchases are made and the balance in the following quarter. The ending inventory of each quarter should be equal to 30% of the amount of estimated cost of goods sold for the coming quarter. 70% of operating expenses (including selling and admin expenses) will be paid for in the quarter in which the expenses are incurred and the balance in the following quarter. Additional plant investment of $22,500 will have to be paid at the end of the 2"d quarter to handle the increased sales volume expected in the 3" quarter. Required: (a) Prepare an Income Statement budget for the first and second quarters of operations for Jim's Trading Company. (b) Prepare a Cash Budget showing details for collections from customers and payments to suppliers, for the first and second quarters of operations for Jim's Trading Company.Cash Collections from Customers: Quarter 1 Quarter 2 Quarter 3 Credit Sales 14,000 23,265 Collections: 75% Current Quarter 10,500 217,500 23% | Quarter 34,500 Cash Collected in Quarter Cost of Goods Purchased: Quarter 1 Quarter 2 Quarter 3 Cost of Goods Sold 90,000 174,000 204,000 Add: Closing Inventory 52,200 61,200 = Total Requirements 142,200 235,200 Less: Opening Inventory 29,000 29,000 PURCHASES 113,200 206,200 PURCHASES PAID FOR: 60% Current Quarter 40%% Quarter after sale Payments to Suppliers Cash Payment - Selling & Admin Expense Quarter 1 Quarter 2 Quarter 3 Total Selling Expense (F +V) Total Admin Expense (F +V) Total Operating Expense Paid: 70% Current Quarter 30% Quarter after sale Payments for Operating ExpenseCash Budget Cash Receipts: Quarter 1 Quarter 2 Proceeds from Sales to Customers Total Receipts Less Payments Payments for Purchases / Suppliers Paid Total Operating Expenses Plant Investment Total Payments Surplus/Deficit Cash Add Opening Balance of cash = Closing Cash balance