Understanding Relationships, Cash Budget, Pro Forma Balance Sheet

Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of the year:

1. Sales:

   May (actual)	$100,000
   June (actual)	120,000
   July (estimated)	90,000
   August (estimated)	100,000
   September (estimated)	135,000
   October (estimated)	110,000

2. Each month, 30% of sales are for cash and 70% are on credit. The collection pattern for credit sales is 20% in the month of sale, 50% in the following month, and 30% in the second month following the sale.
3. Each month, the ending inventory exactly equals 50% of the cost of next month's sales. The markup on goods is 25% of cost.
4. Inventory purchases are paid for in the month following the purchase.
5. Recurring monthly expenses are as follows:

   Salaries and wages	$10,000
   Depreciation on plant and equipment	4,000
   Utilities	1,000
   Other	1,700

6. Property taxes of $15,000 are due and payable on July 15.
7. Advertising fees of $6,000 must be paid on August 20.
8. A lease on a new storage facility is scheduled to begin on September 2. Monthly payments are $5,000.
9. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9%. The company must borrow in multiples of $1,000.
10. A partially completed balance sheet as of June 30 follows. (Note: Accounts payable is for inventory purchases only.)

    Cash	$ ?
    Accounts receivable	?
    Inventory	?
    Plant and equipment, net	425,000
    Accounts payable				$ ?
    Common stock				210,000
    Retained earnings				268,750
    Total	$ ?			$ ?

Required:

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1. Complete the balance sheet given in Item j.

Grange Retailers Balance sheet June 30

	Assets	L and OE
Cash	$fill in the blank b69cb8faff8e058_1
Accounts receivable	fill in the blank b69cb8faff8e058_2
Inventory	fill in the blank b69cb8faff8e058_3
Plant and equipment, net	425,000
Accounts payable		$fill in the blank b69cb8faff8e058_4
Common stock		210,000
Retained earnings		268,750
Total	$fill in the blank b69cb8faff8e058_5	$fill in the blank b69cb8faff8e058_6

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1. Use the accounting equation (assets = liabilities and owners' equity).

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2. Prepare a cash budget for each month in the third quarter and for the quarter in total (the third quarter begins on July 1). Prepare a supporting schedule of cash collections. If an amount is zero, enter "0" or leave the entry box blank.

Grange Retailers Cash Budget For the Quarter Ending September 30

	July	August	September	Total
Beginning cash balance	$fill in the blank 875813f8a00305b_1	$fill in the blank 875813f8a00305b_2	$fill in the blank 875813f8a00305b_3	$fill in the blank 875813f8a00305b_4
Cash collections	fill in the blank 875813f8a00305b_5	fill in the blank 875813f8a00305b_6	fill in the blank 875813f8a00305b_7	fill in the blank 875813f8a00305b_8
Total cash available	$fill in the blank 875813f8a00305b_9	$fill in the blank 875813f8a00305b_10	$fill in the blank 875813f8a00305b_11	$fill in the blank 875813f8a00305b_12
Cash disbursements:
Purchases	$fill in the blank 875813f8a00305b_13	$fill in the blank 875813f8a00305b_14	$fill in the blank 875813f8a00305b_15	fill in the blank 875813f8a00305b_16
Salaries and wages	fill in the blank 875813f8a00305b_17	fill in the blank 875813f8a00305b_18	fill in the blank 875813f8a00305b_19	fill in the blank 875813f8a00305b_20
Utilities	fill in the blank 875813f8a00305b_21	fill in the blank 875813f8a00305b_22	fill in the blank 875813f8a00305b_23	fill in the blank 875813f8a00305b_24
Other	fill in the blank 875813f8a00305b_25	fill in the blank 875813f8a00305b_26	fill in the blank 875813f8a00305b_27	fill in the blank 875813f8a00305b_28
Property taxes	fill in the blank 875813f8a00305b_29	fill in the blank 875813f8a00305b_30	fill in the blank 875813f8a00305b_31	fill in the blank 875813f8a00305b_32
Advertising fees	fill in the blank 875813f8a00305b_33	fill in the blank 875813f8a00305b_34	fill in the blank 875813f8a00305b_35	fill in the blank 875813f8a00305b_36
Lease	fill in the blank 875813f8a00305b_37	fill in the blank 875813f8a00305b_38	fill in the blank 875813f8a00305b_39	fill in the blank 875813f8a00305b_40
Total disbursement	$fill in the blank 875813f8a00305b_41	$fill in the blank 875813f8a00305b_42	$fill in the blank 875813f8a00305b_43	$fill in the blank 875813f8a00305b_44
Minimum cash balance	fill in the blank 875813f8a00305b_45	fill in the blank 875813f8a00305b_46	fill in the blank 875813f8a00305b_47	fill in the blank 875813f8a00305b_48
Total cash needs	$fill in the blank 875813f8a00305b_49	$fill in the blank 875813f8a00305b_50	$fill in the blank 875813f8a00305b_51	$fill in the blank 875813f8a00305b_52
Excess (deficiency)	$fill in the blank 875813f8a00305b_53	$fill in the blank 875813f8a00305b_54	$fill in the blank 875813f8a00305b_55	$fill in the blank 875813f8a00305b_56
Financing:
Borrowings	$fill in the blank 875813f8a00305b_57	$fill in the blank 875813f8a00305b_58	$fill in the blank 875813f8a00305b_59	$fill in the blank 875813f8a00305b_60
Repayments	fill in the blank 875813f8a00305b_61	fill in the blank 875813f8a00305b_62	fill in the blank 875813f8a00305b_63	fill in the blank 875813f8a00305b_64
Interest	fill in the blank 875813f8a00305b_65	fill in the blank 875813f8a00305b_66	fill in the blank 875813f8a00305b_67	fill in the blank 875813f8a00305b_68
Total financing	$fill in the blank 875813f8a00305b_69	$fill in the blank 875813f8a00305b_70	$fill in the blank 875813f8a00305b_71	$fill in the blank 875813f8a00305b_72
Ending cash balance	$fill in the blank 875813f8a00305b_73	$fill in the blank 875813f8a00305b_74	$fill in the blank 875813f8a00305b_75	$fill in the blank 875813f8a00305b_76
Cash collections:
Cash sales	$fill in the blank 875813f8a00305b_77	$fill in the blank 875813f8a00305b_78	$fill in the blank 875813f8a00305b_79	$fill in the blank 875813f8a00305b_80
Credit sales:
Current month	fill in the blank 875813f8a00305b_81	fill in the blank 875813f8a00305b_82	fill in the blank 875813f8a00305b_83	fill in the blank 875813f8a00305b_84
Prior month	fill in the blank 875813f8a00305b_85	fill in the blank 875813f8a00305b_86	fill in the blank 875813f8a00305b_87	fill in the blank 875813f8a00305b_88
From two months ago	fill in the blank 875813f8a00305b_89	fill in the blank 875813f8a00305b_90	fill in the blank 875813f8a00305b_91	fill in the blank 875813f8a00305b_92
Total collections	$fill in the blank 875813f8a00305b_93	$fill in the blank 875813f8a00305b_94	$fill in the blank 875813f8a00305b_95	$fill in the blank 875813f8a00305b_96

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Partially correct

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3. Prepare a pro forma balance sheet as of September 30.

Grange Retailers Balance Sheet September 30

	Assets	L and OE
Accounts payableCashCommon stockRetained earningsCash	$Cash
Accounts payableAccounts receivableCommon stockRetained earningsAccounts receivable	Accounts receivable
Accounts payableCommon stockInventoryRetained earningsInventory	Inventory
Accounts payableCommon stockPlant and equipmentRetained earningsPlant and equipment	Plant and equipment
Accounts payableAccounts receivableCashInventoryPlant and equipmentAccounts payable		$Accounts payable
Accounts receivableCashCommon stockInventoryPlant and equipmentCommon stock		Common stock
Accounts receivableCashInventoryPlant and equipmentRetained earningsRetained earnings		Retained earnings
Total	$fill in the blank 820224015057f91_15	$fill in the blank 820224015057f91_16