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Chapter 22: Q43PGA (page 1247)

Question: Preparing a financial budget—schedule of cash receipts, schedule cash payments, cash budget

Baxter Company’s budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.

Short Answer

Expert verified

Answer

The ending balance of cash is $64,425 for January and $93,348 for February.

Step by step solution

01

Preparation of schedule of cash receipts from customers 


Baxter Company

Schedule of cash receipts from customers

For January and February, 2018

January

February

Total Sales

$81,000

$82,800

Cash receipts from customers (80% of Sales)

$64,800

$66,240

Cash receipts from last quarter

$19,000

$16,200

Total cash received from customers

$83,800

$82,440

02

Preparation of schedule of cash payments


Baxter Company

Schedule of cash payments from purchases

For January and February, 2018

January

February

Total purchases

$40,600

$41,500

Cash payments:

Purchases (60%)

$24,360

$24,900

Remaining purchases (40%)

$11,000

$16,240

Total cash paid

$35,360

$41,140

03

 Step 3: Preparation of schedule of cash payments


Baxter Company

Schedule of selling and administrative expenses

For January and February, 2018

January

February

Salaries

$2,820

$3,500

Commission

$2,395

$4,077

Rent

$2,400

$2,400

Income tax expense

$2,400

$2,400

Total expenses

$10,015

$12,377

04

 Step 4: Preparation of schedule of cash budget


Puckett Company

Cash Budget

For the first quarter, 2018

January

February

Opening cash balance

$26,000

$64,425

Cash receipts

$83,800

$82,440

Cash paid for purchases

$35,360

$41,140

Cash paid for expenses

$10,015

$12,377

Cash ending balance

$64,425

$93,348

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Most popular questions from this chapter

Explain the difference between strategic and operational budgets

Preparing an operating budget—selling and administrative expense budget

Consider the sales budget presented in Exercise E22-31. Slate’s selling and administrative expenses include the following:

Rent, \(2,000 per month

Salaries, \)4,000 per month

Commissions, 5% of sales

Depreciation, $1,000 per month

Miscellaneous expenses, 2% of sales

Prepare a selling and administrative expense budget for each of the three quarters of 2018 and totals for the nine-month period.

: Completing a comprehensive budgeting problem—merchandising company

Belton Printing Company of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for the month of April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Belton Printing’s controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)17,000 budgeted for cash purchase of equipment.

c. April depreciation expense, \(800.

d. Cost of goods sold, 55% of sales.

e. Desired ending inventory for April is \)24,800.

f. April selling and administrative expenses includes salaries of \(29,000, 20% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)86,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,300.

j. April purchases of inventory, \)22,900 for cash and $37,200 on account. Half the credit purchases will be paid in April and half in May

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.

What is a master budget?

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay “bonuses” to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn’s position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?
See all solutions

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