Question No 3:

The balance sheet of Phototec, Inc., a distributor of photographic supplies, as of May 31 is given below:

Balance Sheet

May 31

Assets Amount Liabilities and Equity Amount

Cash $8,000 Accounts Payable $90,000

Accounts Receivable 72,000 Notes Payable 15,000

Inventory 30,000 Capital stock 420,000

Building and equipment 500,000 Retained earnings 85,000

Total $610,000 Total $610,000

Phototec, Inc., has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month aheadnamely, June. The company has assembled the following budgeted data relating to June:

a. Sales are budgeted at $250,000. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a months credit sales are collected in the month the sales are made, and the remainder is collected the following month. All of the May 31 accounts receivable in the balance sheet will be collected in June.

b. Purchases of inventory are expected to total $200,000 during June. These purchases will all be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June.

c. Selling and administrative expenses for June are budgeted at $51,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

d. The note payable on the May 31 balance sheet will be paid during June. The companys interest expense for June (on all borrowing) will be $500, which will be paid in cash.

e. New warehouse equipment costing $9,000 will be purchased for cash during June.

f. During June, the company will borrow $18,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Requirements: (Marks 12)

Prepare a cash budget for June. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases.