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Chapter 22: Q28E (page 1235)

Preparing the financial budget—cash budget

Use the original schedule of cash receipts completed in Exercise E22-26, Requirement 1, and the schedule of cash payments completed in Exercise E22-27 to complete a cash budget for Marcel Company for January, February, and March.

Additional information: Marcel’s beginning cash balance is \(5,000, and Marcel desires to maintain a minimum ending cash balance of \)5,000. Marcel borrows cash as needed at the beginning of each month in increments of \(1,000 and repays the amounts borrowed in increments of \)1,000 at the beginning of months when excess cash is available. The interest rate on amounts borrowed is 8% per year. Interest is paid at the beginning of the month on the outstanding balance from the previous month.

Short Answer

Expert verified

Answer

The balances in prepaid property taxes, accounts payable, and utilities payable are $3,330, $4,800, $900.

Step by step solution

01

Preparation of cash budget

Particulars

January

February

March

Beginning cash balance

$5,000

$5,380

$5,010

Cash receipts

$8,960

$12,080

$11,340

Cash payments:




Direct materials

$0

$3,100

$3,500

Direct labor cost

$3,300

$3,500

$3,600

Utilities for plant

$0

$650

$650

Property taxes on plant

$200*12 =$2,400

-

-

Utilities for office

$0

$250

$250

Property taxes on office

$170*12 =$2,040

-

-

Office salaries

$3,500

$3,500

$3,500

Total cash payments

$14,340

$14,500

$16,300

Ending cash balance before financing

(380)

$2,960

$50

Minimum cash balance desired

($5,000)

($5,000)

($5,000)

Projected cash excess (deficiency)

($5,380)

($2,960)

($4,950)

Financing (borrowing)

$5,380

$2,050

$4,950

Ending cash balance

$5,380

$5,010

$5,000

02

Calculation of balances in prepaid property taxes, accounts payable, and utilities payable.

Prepaid property taxes = (tax on office+ tax on plant)*9

= ($200+$170)*9

= $3,330

Accounts payable = $ 4,800

Utilities payable = Utilities on office+ utilities on plant

= $650 + $250

= $900

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Most popular questions from this chapter

Question:Brooks Company expects to sell 8,500 units for \(175 each for a total of \)1,487,500 in January and 2,500 units for \(200 each for a total of \)500,000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4,700 units in March for \(280 each. Brooks’s target ending inventory is \)20,000 plus 50% of the next month’s cost of goods sold. Prepare Brooks’s inventory, purchases, and cost of goods sold budget for January and February

Preparing an operating budget—cost of goods sold budget

Refer to the budgets prepared in Exercise E22-24. Determine the cost per kit to manufacture the model airplane kits. Grady projects sales of 100, 150, 100, and 200 kits for the next four quarters. Prepare a cost of goods sold budget for the year. Grady has no kits in beginning inventory. Round amounts to two decimal places.

Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.

1. Managers are required to think about future business activities.

2. Managers use feedback to identify corrective action.

3. Managers use results to evaluate employees’ performance.

4. Managers work with managers in other divisions.

Preparing a financial budget—budgeted income statement and balance sheet

Buncomb Companyhas the following post-closing trial balance on December 31, 2018:

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales,all on account $ 121,700 Budgeted purchases of merchandise inventory,

all on account 61,200 Budgeted cost of goods sold 60,850 Budgeted selling and administrative expenses: Commissions expense 6,085 Salaries expense 3,000 Rent expense 4,100 Depreciation expense 900 Insurance expense 300 Budgeted cash receipts from customers 126,450 Budgeted cash payments for merchandise inventory 67,925 Budgeted cash payments for salaries and commissions 14,836 Budgeted income tax expense 4,700 Additional information:

Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

Requirements

  1. Prepare a budgeted income statement for the quarter ended March 31, 2019.
  2. 2. Prepare a budgeted balance sheet as of March 31, 2019.

Describing master budget components

Sarah Edwards, division manager for Pillows Plus, is speaking to the controller, Diana Rothman, about the budgeting process. Sarah states, “I’m not an accountant, so can you explain the three main parts of the master budget to me and tell me their purpose?” Answer Sarah’s question.
See all solutions

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