Question 6 Cash Budgeting Suggested time 30 minutes 15 Marks J.Exotic Ltd. is an exotic animal park that is preparing a budget for the third quarter of the calendar year. The company's balance sheet as of June 30 is shown below: J.Exotic Ltd Balance Sheet June 30 Cash Assets Accounts receivable Inventory Plant and equipment, net of depreciation $ 81,000 127,000 53,000 210,000 Total assets $ 471.000 Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings $ 62,000 310,000 99,000 Total liabilities and shareholders' equity $471,000 J.Exotic's managers have made the following additional assumptions and estimates: a. Estimated sales for July, August, September, and October will be $260,000, $280.000. $270,000, and $290,000, respectively. b. All sales are on credit. Each month's credit sales are collected 25% in the month of sale and 75% in the month following the sale. c Each month's ending inventory must equal 40% of the cost of next month's sales. The cost of goods sold is 70% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. d. Monthly selling and administrative expenses are always $66,000 ($6,000 of which is depreciation expense) 6. The Schedule of Expected Cash Collections relating to A/R) is as follows: August September From AR Sales on account July 127.000 65,000 $ 195,000 70,000 $ August September Total cash collections 210,000 67.500 277.500 $ 192,000 $ 265,000 $ f. The Merchandise Purchases budget is as follows: July 182,000 78,400 $ September 189,000 August 196,000 75,600 $ $ 81,200 Budgeted cost of goods sold Add: desired ending inventory Total needs Less: beg inventory Required purchases 260.400 53,000 207,400 271,600 78.400 193,200 270,200 75,600 194,600 $ $ $ 9. The Schedule of Expected Cash Disbursements (relating to A/P) is as follows: August September July 62,000 $ 103,700 $ From AP Purchases on account July August September Total cash disbursements 103,700 96,600 $ 96,600 97,300 193,900 $ 165,700 $ 200,300 $ Required 1) Prepare an income statement for the quarter ended September 30. J.Exotic Ltd. Income Statement For the quarter ended September 30 Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income 2) Prepare a balance sheet as of September 30 J.Exotic Ltd. Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net Total assets Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings Total liabilities and shareholders' 2