Kline Sisters Company operates a gift shop where peak sales and activity occur i
ID: 2407864 • Letter: K
Question
Kline Sisters Company operates a gift shop where peak sales and activity occur in the months of December and January. Data regarding the store's operations follow:
Sales are budgeted at $360,000 for January, 320,000 for February, and $250,000 for March and $240,000 in April.
Collections are expected to be 30% in the month of sale, 65% in the month following the sale, 3% in the second month following sale and 2% uncollectible.
The cost of goods sold is 76% of sales.
The company desires ending merchandise inventory to equal 13% of the following month's cost of goods sold. Payment for merchandise is made 50% in the month of purchase and 50% in the month following the purchase.
Monthly operating expenses to be paid in cash are $12,000.
Equipment purchases of $40,000 in February and $30,000 in March were paid in cash.
Monthly depreciation is $13,000.
Dividends of $48,000 were declared and paid in January.
Any borrowings must be in $1,000 increments at 12% annual interest. Assume interest accrues at the beginning of the month and is paid at the end of the month.
The company must maintain a minimum cash balance of $30,000.
Ignore income taxes.
All accounts receivable from December 31 will be collected in January and all accounts payable at December 31 will be paid in January.
The balance sheet as of December 31st:
Kline Sisters Company
Balance Sheet
12/31/14
Assets:
Cash
$22,000
Net Accounts Receivable
$83,000
Merchandise Inventory
$36,000
Property Plant and Equipment
$1,600,000
Less: accumulated depreciation
$588,000
$1,012,000
Total Assets
$1,153,000
Liabilities & Stockholder's Equity
Accounts Payable
$190,000
Common Stock
$350,000
Retained Earnings
$613,000
Total liabilities and stockholder's equity
$1,153,000
Prepare the following budgets for each month January, February, March and Total for the quarter in good formin excel with proper use of formulas and formatting:
a. Prepare a Schedule of Expected Cash Collections
What is the budgeted accounts receivable at March 31st?
b. Prepare a Merchandise Purchases Budget and a Schedule of Expected Cash Disbursements
What is the budgeted accounts payable at March 31st?
c. Prepare a Cash Budget
How much does the company need to borrow for the quarter?
How much can the company repay for the quarter?
d. Prepare a Budgeted Income Statement
Please highlight your answers.
Kline Sisters Company
Balance Sheet
12/31/14
Assets:
Cash
$22,000
Net Accounts Receivable
$83,000
Merchandise Inventory
$36,000
Property Plant and Equipment
$1,600,000
Less: accumulated depreciation
$588,000
$1,012,000
Total Assets
$1,153,000
Liabilities & Stockholder's Equity
Accounts Payable
$190,000
Common Stock
$350,000
Retained Earnings
$613,000
Total liabilities and stockholder's equity
$1,153,000
Explanation / Answer
ans a Jan Feb Mar Total Sales 360000 320000 $250,000 930000 Schedule of Expected Cash Collections From Accounts Receivable 83000 83000 From Jan sales (30%,65%,3%*360000) 108000 234000 10800 352800 From Feb sales (30,65%)*320000 96000 208000 304000 From mar (30%) $75,000.0 75000 Total Collectios 191000 330000 293800 814800 Gross Accounts receivable 250000*70% 175000 Net Accounts receivable 250000*68% 170000 Total Mercandise Purchases Budget Jan Feb Mar Total April Budgeted Cost of Goods Sold (76%*sales) $273,600 $243,200 $190,000 $706,800 $182,400 Add Desired Ending Inventory (13%*next COGS $31,616 $24,700 $23,712.0 $23,712.0 Total Needs $305,216 $267,900 $213,712 $730,512 Less Beginning Inventory $36,000 $31,616 $24,700 $36,000 Required Purcahses $269,216 $236,284 $189,012 $694,512 Schedule of Expected Cash Disbursements- Merchandise Purchases Jan Feb Mar Total Payment in curent month (50%) $134,608 $118,142 $94,506 $347,256 Payment in prior month (50% of prior month) $190,000 $134,608 $118,142 $442,750 Total Disbursements $324,608 $252,750 $212,648 $790,006 Accounts payable as on 31 March $94,506 Cash Budget Jan Feb Mar Beginnning Cash Balance 22,000 $30,392 $30,000 Add Cash Collections 191,000 330,000 293,800 Total Cash Available 213,000 360,392 323,800 Less Payments For Inventory Purchases $324,608 $252,750 $212,648 Payment of operating expenses 12000 12000 12000 Payment of Equipent 40000 30000 Payment of Dividend 48000 0 0 Total Cash Disbursements $384,608 $304,750 $254,648 Excess(Deficiency) of Cash ($171,608) $55,642 $69,152 Financing: Borrowings: (172000+30000) 202000 Repayments: ($21,602) ($37,348) (55642-4040-30000) (69152-236-30000) Interest expenses -4040 -1804 Total Financing 202000 -25642 -39152 Ending Cash Balance $30,392 $30,000 $30,000 Income statement Sales $930,000 Less: cost of good sold $706,800 Gross profit $223,200 Less: Operating expenses (12000+13000)*3 75000 Operating income $148,200 Interest expenses 0 Net Income $148,200
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