question and answer sheet

Chapter 27 Master Budgets and Planning 1347 During March 2008. Shatai Corporation's management prepared the following budgeted balance Problem 27-5B sheet for March 31, 2008: Preparing a complete master budget Shafal Corporation LO3,45 Budgeted Balance Sheet As of March 31, 2008 Cash 3 18,000 Accounts receivable 54,000 Inventory 90,000 Total current assets 5162,000 Equipment. $216,000 Accumulated amortization 21,600 194,400 Total 5356,400 Accounts payable $ 28,800 Loan from bank 18,000 Taxes payable (due July 15, 2008) 43,200 Totallaties 30,000 Common shares 5180.000 Retained earings (delict) B6,400 Total shareholders' equity 266,400 Total 5356,400 In anticipation of preparing a master budget for April, May, and June 2008, management has gathered the following information: a. Shafal Corporation's single product is purchased for $10 per unit and resold for 515 per unit. Although the inventory level on March 31 is smaller than desired (9,000 units) management has established a new inventory policy that month-end inventory should be 80% of the fol lowing month's expected sales, Budgeted unit sales are: April May June July. 36,000 units 32,400 43,200 43,200 b. Cash sales are 50% of total sales and credit sales are 50% of total sales. Of the credit sales, 80% are collected in the first month after the sale and 20% in the second month after the sale. Fighty percent of the March 31, 2008, balance of accounts receivable will be collected during April and 20% will be collected during May. c. Merchandise purchases are paid for as follows: 70% in the month after purchase, and 30% in the second month after purchase. For example, 70% of the Accounts Payable balance on March 31, 2008, will be paid during April, and 30% will be paid during May d. Sales commissions of 10% of sales are paid each month. Additional sales salaries are 543,200 per year. e. General and administrative salaries are $388,800 per year. Repair expenses equal $1,800 per month and are paid in cash. f. The equipment shown in the March 31, 2008, balance sheet was purchased one year ago. It is being amortized over 10 years under the straight line method with no salvage value. The following new purchases of equipment are planned in the coming quarter: April May lune, $36,000 18,000 54,000 This equipment will also be amortized with the straight-line method over ten years, with no salvage value. A full month's amortization is taken for the month in which the equipment is purchased g. The company plans to acquire some land at the end of June at a cost of $360,000. The pur chase price will be paid with cash on the last day of the month. Thus if a bank loan is neces- sary the first payment will be made at the end of July, h. Shafai Corporation has a working arrangement with the bank to obtain additional loans needed. The interest rate is 10% per year, and the interest is paid at the end of each month based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. Shafal Corporation has agreed to maintain a minimum ending cash bal ance of $18,000 in every month 1. The income tax rate applicable to the company is 40%. However, income taxes on the first quarter's income will not be paid until July 15. Required Prepare a master budget for the second quarter of 2008 with the operating budgets, capital expenditures budget, and the cash budget prepared on a monthly basis. The budgeted income statement should show operations for the second quarter, and the budgeted balance sheet should be prepared as of June 30, 2008. The operating budgets included in the master budget should include a sales budget (showing both budgeted unit sales and dollar sales), a merchandise purchases budget, a selling expense budget, and a general and administrative budget. (Round to the nearest dollar) Check figure: Net Income for the quarter, 5162,000 Problem 27-5B (See the instructions, page 1 and 2) 1. SHAFAI COMPANY Sales Budgets April May and June 2008 April May June Quarter Budgetedsales in units Budgeted price per unit Budgeted sales in dollars 2. March Quarter SHAFAI COMPANY Merchandise Purchases Budget April, May and June 2008 January February Budgetedsales (units) Add desired ending inventory Merchandise required Deduct beginning inventory Merchandise to be purchased (units) Price per unit Cost of merchandise purchased SHAFAI CORPORATION Selling Expense Budget April, May, and June 2008 Apni May June Quarter Budgeted sales Sales commission percentage Salary of sales manager Problem 27-58 Total SHAFAI CORPORATION General and Administrative Expense Budget April, May, and June 2008 April May June General administrative salaries Repairs expense Amortization expense: Equipment owned on Mar 31, 2008 Equipment to be purchased in April, Equipment to be purchased in May, Equipment to be purchased in June, Total SHAFAI CORPORATION Capital Expenditures Budget April, May, and June 2008 April May June Equipment to be purchased. Land to be purchased Total Schedule 1. Calculation of Cash Receipts from Customers April May June Sales Percent credit sales Sales on account Cash sales Accounts receivable collections March 31, 2008, balance From April sales on account From May sales on account Total Schedule 2. Calculation of Cash Payments for Merchandise April May June Accounts payable on March 31, 2008 April purchases May purchases Total SHAFAI CORPORATION Cash Budget April May, and June 2008 April May June Beginning cash balance Cash receipts from customers (Schedule 1). Total Cash disbursements: For merchandise (Schedule 2) Sales commissions Salary of sales manager General administrative salaries Repairs expense Interest Taxes payable Purchases of equipment Purchase of land Total cash disbursements Balance Repayment of loan from bank Additional loan from bank Ending cash balance Loan balance, end of month Problem 27-5B (continued) SHAFAI CORPORATION Budgeted Income Statement April, May, and June 2008 Sales 0 Cost of goods sold () Gross profit Operating expenses: Sales commissions (See Selling Expense Budget) Sales salary (See Selling Expense Budget) General and administrative salaries (See General and Administrative Expense Budget) Repairs expense (See General and Administrative Expense Budget) Amortization expense (See General and Administrative Expense Budget) Interest expense (Cash Budget) Net income before taxes Income tax expense. Net income Problem 27-58 SHAFAI CORPORATION Budgeted Balance Sheet June 30, 2008 ASSETS Cash. Accounts receivable (a) Inventory Total current assets Equipment (b Accumulated amortization (C) Land Total assets Accounts payable (d). Loan from banke) Taxes payable (due 15/07/2008/1). Total liabilities Common shares Retained eamings (9) Total shareholders' equity. Total liabilities and shareholders equity @80@@@ @