problem 9-48 ryan richards, controller for grange

Problem 9-48

Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the

ti f h b d t f th thi d tpreparation of a cash budget for the third quarter of the current year:

a)Sales:May (actual) $100,000J ( t l) 120 000June (actual) 120,000July (estimated) 90,000August (estimated) 100 000August (estimated) 100,000September (estimated) 135,000October (estimated) 110,000( )

b)Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month and 30 percent inpercent in the following month, and 30 percent in the second month following the sale.

)E h th th di i t tl l 50c)Each month, the ending inventory exactly equals 50 percent of the cost of next month’s sales. The markup on goods is 25 percent of costmarkup on goods is 25 percent of cost.

d)Inventory purchases are paid for in the month f ll i th hfollowing the purchase.

e)Recurring monthly expenses are as follows:

S l i d $10 000Salaries and wages $10,000Depr. on plant & equip. 4,000Utilities 1 000Utilities 1,000Other 1,700

f) Property taxes of $15 000 are due and payable onf) Property taxes of $15,000 are due and payable on July 15.

) Ad i i f f $6 000 b id Ag) Advertising fees of $6,000 must be paid on August 20.

h) A lease on a new storage facility is scheduled to begin on September 2. Monthly payments are $5 000$5,000.

i) The company has a policy to maintain a minimum cash balance of $10 000 If necessary it willcash 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. The annual g ginterest rate is 9 percent. The company must borrow in multiples of $1,000.

j) A partially completed balance sheet as of June 30,2006 follows (Accounts payable is for inventory2006, follows. (Accounts payable is for inventory purchases only.)Cash $ ?Cash $ ?Accounts Rec. ?Inventory ?Plant & Equip 425,000Accounts Pay. $ ?C St k 210 000Common Stock 210,000Retained Earnings 268,750

Total $ ? $ ?Total $ ? $ ?

Required

1 Complete the balance sheet given in (j)1. Complete the balance sheet given in (j).

b)Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month and 30 percent inpercent in the following month, and 30 percent in the second month following the sale.

Cash Receipts:

Sales $100 000 120 000 90 000 100 000Sales $100,000 120,000 90,000 100,000

May June July Aug

C ll tiCollectionsCash Sales 30,000 36,000 27,000 30,000(Sales x 0.3)( )Credit Sales 14,000 16,800 12,600 14,000(Sales x 0.7 x 0.2)One month later 35 000 42 000 31 500One month later 35,000 42,000 31,500(Sales x 0.7 x 0.5) (May) (June) (July)Two months later 21,000 25,200A

(S l 0 7 0 3) (M ) (J )(Sales x 0.7 x 0.3) (May) (June)

Total 44,000 87,800 102,600 100,700

Note: AAR = $88,200 (June 30)

Cash Receipts:Sales $90,000 100,000 135,000 110,000, , , ,

July Aug Sep OctCollectionsCash Sales 27 000 30 000 40 500 33 000Cash Sales 27,000 30,000 40,500 33,000(Sales x 0.3) Credit Sales 12,600 14,000 18,900 15,400(S l 0 7 0 2)(Sales x 0.7 x 0.2)One month later 42,000 31,500 35,000 47,250(Sales x 0.7 x 0.5) (June) (July) (Aug) (Sep) ( ) ( ) ( y) ( g) ( p)Two months later 21,000 25,200A 18,900 21,000 28,350B

(Sales x 0.7 x 0.3) (May) (June) (July) (Aug) (Sep)

Total 102,600 100,700 113,300 116,650

A $Note: AAR = $88,200 (June 30)BAR = $96,600 (Sep 30)

b)Each month, the ending inventory exactly equals 50 percent of the cost of next month’s sales. The markup on goods is 25 percent of cost.

c) Inventory purchases are paid for in the month following the purchase.

Purchases:

Sales 100,000 120,000 90,000 100,000 135,000

Cost (1.25x = Sales) 80,000 96,000 72,000 80,000 108,000(x = Sales/1.25)

M J J l A SMay June July Aug SepEnd. Inv. 48,000 36,000C 40,000 54,000 44,000D

(next mnth. X 0.5)( )CoGS 80,000 96,000 72,000 80,000 108,000Total Needs 128,000 132,000 112,000 134,000 152,000Less Beg Inv 48 000 36 000 40 000 54 000Less Beg. Inv. 48,000 36,000 40,000 54,000Purchases 84,000E 76,000 94,000 98,000F

Payments (mnth after pur.) 84,000 76,000 94,000y ( p )Note EAP = $84,000 (June 30)

FAP = $98,000 (Sep 30)

Purchases:Sales 120,000 90,000 100,000 135,000 110,000


June July Aug Sep OctJu e Ju y ug Sep OctEnd. Inv. 36,000C 40,000 54,000 44,000D

(next mnth. X 0.5)CoGS 96 000 72 000 80 000 108 000CoGS 96,000 72,000 80,000 108,000Total Needs 132,000 112,000 134,000 152,000Less Beg. Inv. 48,000 36,000 40,000 54,000

E FPurchases 84,000E 76,000 94,000 98,000F

Payments (mnth after pur.) 84,000 76,000 94,000

Note EAP = $84,000 (June 30)FAP = $98,000 (Sep 30)

Liabilities &Assets Stockholders’ EquityAssets Stockholders Equity

Cash $ Accts. Rec.InventoryPlant & Equip. 425,000*A t PAccts. Pay.Common Stk. 210,000*Retained Earnings 268 750*Retained Earnings 268,750

Total

*Given

Liabilities &Assets Stockholders’ Equity

$Cash $ 13,550Accts. Rec. 88,200A

Inventory 36 000CInventory 36,000C

Plant & Equip. 425,000*Accts. Pay. $ 84,000EAccts. Pay. $ 84,000Common Stk. 210,000*Retained Earnings 268,750*

Total $562,750 $562,750

*Gi*Given

Required

2 Prepare a cash budget for each month in the third2.Prepare a cash budget for each month in the third quarter and for the quarter in total. (The third quarter begins on July 1.) Provide a supporting schedule of cash collections.

Cash Receipts:Sales $90,000 100,000 135,000 110,000, , , ,

July Aug Sep OctCollectionsCash Sales 27 000 30 000 40 500 33 000Cash Sales 27,000 30,000 40,500 33,000(Sales x 0.3) Credit Sales 12,600 14,000 18,900 15,400(S l 0 7 0 2)(Sales x 0.7 x 0.2)One month later 42,000 31,500 35,000 47,250(Sales x 0.7 x 0.5) (June) (July) (Aug) (Sep) ( ) ( ) ( y) ( g) ( p)Two months later 21,000 25,200A 18,900 21,000 28,350B

(Sales x 0.7 x 0.3) (May) (June) (July) (Aug) (Sep)

Total 102,600 100,700 113,300 116,650

A $Note: AAR = $88,200 (June 30)BAR = $96,600 (Sep 30)

Grange RetailersCash Budget

For Quarter Ending Sept 30For Quarter Ending Sept. 30July August September Total

Beg. Cash Bal. $ 13,550 $ 10,450 $ 10,450 $ 13,550C h ll ti 102 600 100 700 113 300 316 600Cash collections 102,600 100,700 113,300 316,600Total Cash Avail. $116,150 $111,150 $123,705 $330,150

Cash disbursementsPurchases $ 84,000 $ 76,000 $ 94,000 $254,000Salaries & Wages 10,000 10,000 10,000 30,000Utilities 1 000 1 000 1 000 1 000Utilities 1,000 1,000 1,000 1,000Other 1,700 1,700 1,700 1,700Property taxes 15,000 15,000Ad ti i f 6 000 6 000Advertising fees 6,000 6,000 Lease 5,000 5,000

Total dis. $111,700 $ 94,700 $111,700 $318,100Min. Cash Bal. 10,000 10,000 10,000 10,000Total Cash Needs $121,700 $104,700 $121,700 $328,100

Purchases:Sales 120,000 90,000 100,000 135,000 110,000


June July Aug Sep OctJu e Ju y ug Sep OctEnd. Inv. 36,000C 40,000 54,000 44,000D

(next mnth. X 0.5)CoGS 96 000 72 000 80 000 108 000CoGS 96,000 72,000 80,000 108,000Total Needs 132,000 112,000 134,000 152,000Less Beg. Inv. 48,000 36,000 40,000 54,000

E FPurchases 84,000E 76,000 94,000 98,000F

Payments (mnth after pur.) 84,000 76,000 94,000

Note EAP = $84,000 (June 30)FAP = $98,000 (Sep 30)

e)Recurring monthly expenses are as follows:

S l i d $10 000Salaries and wages $10,000Depr. on plant & equip. 4,000Utilities 1 000Utilities 1,000Other 1,700

f) Property taxes of $15 000 are due and payable onf) Property taxes of $15,000 are due and payable on July 15.

) Ad i i f f $6 000 b id Ag) Advertising fees of $6,000 must be paid on August 20.

h) A lease on a new storage facility is scheduled to begin on September 2. Monthly payments are $5 000$5,000.

i) The company has a policy to maintain a minimum cash balance of $10 000 If necessary it willcash 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. The annual g ginterest rate is 9 percent. The company must borrow in multiples of $1,000.

Total Cash Avail. $116,150 $111,150 $123,705 $330,150Total Cash Needs $121,700 $104,700 $121,700 $328,100$ , $ , $ , $ ,Excess (deficiency) $ (5,550) $ 6,450 $ 2,005 $ 2,050Financing:Borrowings $ 6 000 $ 6 000Borrowings $ 6,000 $ 6,000Repayments $ (6,000) (6,000)Interesti (45) $ 0 (45)

T t l fi i $ 6 000 $ (6 045) $ 0 $ (45)Total financing $ 6,000 $ (6,045) $ 0 $ (45)End. Cash Bal. $ 10,450 $ 10,405 $ 12,005G$ 12,005

I = $6000 x 0.09 x 1/12 = $45

Total Cash Avail. $116,150 $111,150 $123,705 $330,150Total Cash Needs $121,700 $104,700 $121,700 $328,100$ , $ , $ , $ ,Excess (deficiency) $ (5,550) $ 6,450 $ 2,005 $ 2,050Financing:Borrowings $ 6 000 $ 6 000Borrowings $ 6,000 $ 6,000Repayments $ (6,000) (6,000)Interest (45) $ 0 (45)


i = $6000 x 0.09 x 1/12 = $45

Required

3) P f b l h t f3) Prepare a pro forma balance sheet as of September 30.

Liabilities &Assets Stockholders’ EquityAssets Stockholders Equity

Cash $ Accts. Rec.InventoryPlant & Equip.A t PAccts. Pay.Common Stk. 210,000*Retained EarningsRetained Earnings

Total $ $

*Given

Liabilities &Assets Stockholders’ Equity

$ GCash $ 12,005G

Accts. Rec. 96,600B

Inventory 44 000DInventory 44,000D

Plant & Equip. 413,000H

Accts. Pay. $ 98,000FAccts. Pay. $ 98,000Common Stk. 210,000*Retained Earnings 257,605

Total $565,605 $565,605

*Gi*GivenH[$425,000 – 3($4,000)]

problem 9-48 ryan richards, controller for grange

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