Watson Products is a merchandising company that sells baby lotion in New York. The company is about to prepare its budgets for the first quarter of the year 20x2. The following information has been assembled to assist in preparing the company's budgets of the quarter. a. Account balances from the post-closing trial balance on December 31, 20x1 follows : Debit Credit Cash..... $ 42,000 369,000 Inventory (8,100 bottles) ........124:50150141214 145,800 Land...." 150,000 Building...... 200,000 Accumulated depreciation - Building ........ $ 20,000 Accounts Payable (from inventory purchased) ..... 113,760 Capital Stock... 705,000 68,040 $906,800 $906,800 b. Actual sales and budgeted sales are as follows (selling price per bottle $30) : Actual Sales Budgeted Sales 20x1 November $360,000 20x2 January $540,000 December $420,000 February $600,000 March $750,000 April $840,000Sales are 25% For cash and 75% on credit. Eighty percent {80%} of a month's credit sales are collected in the rst month after sales, and the remainder 20% are collected in the second month after sales. c. The Company maintains its ending inventory at 45% of [he following month's cost of goods sold. d. The purchase cost per bottle of lotion for the quarter is the same as the inventory on Deoem her 3'], 20x1. Inventory purchases are paid 60% in 1he month of purchase, and the remaining balanoe are paid in the following month. Inventory purchases of die quarter 20x2 Januaryr $ ? February $ ? March $ ? e. Monthlyr operating expenses are budgeted and paid when incurred as follows: SEIE commission .......... 5% of sales Delivery expense .......... 2% of SEIE Salaries expense............ $15,000 Advertising expense ....... $ 4,000 Depreciation expense ...... $ 2,000 Other expenses............. 3% ofsales 1'. Land will be purchased for cash: 20x2: january $100,000 February$ 80,000 g. The oompany must maintain a minimum cash balance of $410,000. All borrowings are done at 1he beginning of a month, and all repaymenls are made at the end oFa month. Borrowings and repaymems of principal must be in multiples of $1,000. Interest is paid onlyr val-Ien principal is repaid. The interest rate is 12% per annum. Example of an answer 6000 1. Total gross profit of the quarter 2. Total operating expenses in the income statement of the first quarter 3. Total cash disbursements for operating expenses of the quarter 4. Total Inventory purchases for the quarter 5. Total cash disbursement for inventory purchases in the first quarter 6. Total cash collected from sales in the quarter 7. Total cash disbursements of the quarter 8. The amount of cash the company will borrow in January 9. Total cash repayment will be made in February 10. Interest expense in the income statement of the quarter
