The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as

Question

The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is given below:

Sales are budgeted at $430,000 for June. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected the following month. All of the May 31 accounts receivable will be collected in June.

Purchases of inventory are expected to total $340,000 during June. These purchases will all be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June.

Selling and administrative expenses for June are budgeted at $70,000 , exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,700 for the month.

The note payable on the May 31 balance sheet will be paid during June. The company’s interest expense for June (on all borrowing) will be $600 , which will be paid in cash.

During June, the company will borrow $35,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Prepare schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases.

        

       

Prepare a cash budget for June.

     

      

       

The balance sheet of Snapshot, Inc., a distributor of photographic supplies, as of May 31 is given below:

Explanation / Answer

Solution:

1 a) Preparing schedule of expected cash collections from sales and a schedule of expected cash disbursements for inventory purchases:

Snapshot Inc.

Schedule of Expected Cash Collections

Snapshot Inc.

Schedule of Expected Cash Disbursements

1 b) Preparing a Cash Budget for June:

Snapshot Inc.

Cash Budget for the month of June

2) Preparing a Budgeted Income Statement for June using the Absorption Costing Income Statement:

Snapshot Inc.

Budgeted Income Statement for the month of June

3) Preparing a Budgeted Balance Sheet at June 30:

Snapshot Inc.

Budgeted Balance sheet for the month of June

Snapshot Inc.

Schedule of Expected Cash Collections

Cash sales- June $60,000 Collection on accounts receivables for June [($430,000-$60,000)*0.50] $185,000 May 31 balance $89,000 Total cash receipts $334,000

Snapshot Inc.

Schedule of Expected Cash Disbursements

May 31 accounts payable balance $87,000 June purchases ($340,000 * 40%) $136,000 Total cash payments $223,000

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