2. (12 points) Weldon Industrial Gas Corporation supplies acetylene and other co
ID: 2530134 • Letter: 2
Question
2. (12 points) Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:
The company sells each unit for $45.
Budgeted Sales:
Month
October
November
December
January
Sales in Units
30,000
25,000
40,000
30,000
Collections are expected to be 70% in the month of sale, 30% in the month following the sale.
The A/R balance at September 30th will be collected in full in October.
The cost of the merchandise is $37 per unit.
In addition to meeting the current month’s sales demand, management wants to maintain and ending inventory balance of 10% of the next month’s sales.
The ending inventory balance at September 30th is 3,000 units.
Payment for merchandise is made as follows: ½ paid in the month of the purchase, ½ paid the month following the purchase.
The A/P balance at September 30th will be paid in full in October.
A dividend of $300,000 was paid in October and a $200,000 was paid in November.
The company must maintain a minimum cash balance of $10,000.
The company has a line of credit for $500,000 at a 10% annual interest rate. Borrowings are made the first day of the month, and repaid the last day of the month. Repayments will only be made when repayment of the total principal and interest can be made. No partial repayments.
Balance Sheet
September 30
Assets
Cash.............................................................................................
$ 56,000
Accounts receivable.....................................................................
250,000
Inventory......................................................................................
111,000
Property, plant and equipment
(net of $500,000 accumulated depreciation)............................
913,400
Total assets...................................................................................
$1,330,400
Liabilities and Stockholders’ Equity
Accounts payable.........................................................................
$ 42,000
Common stock.............................................................................
840,000
Retained earnings.........................................................................
448,400
Total liabilities and stockholders’ equity.....................................
$1,330,400
Required:
a.
b.Prepare a Schedule of Expected Cash Collections for October, November and December.
c.Prepare a Merchandise Purchases Budget for October, November and December.
d.Prepare a Schedule of Expected Cash Disbursements for October, November and December.
e.Prepare Cash Budgets for October, November and December.
Sales Budget:
October
November
December
Quarter
Sales in units
Sales price
Total sales
Schedule of Expected Cash Collections:
October
November
December
Quarter
Beginning A/R
October Sales
November Sales
December Sales
Total
Purchases Budget:
October
November
December
Quarter
Sales in units
+Desired end. Inventory
=Total needs
-Beginning Inventory
=Total purchases
x Cost per unit
=Total cost of purchases
Schedule of Expected Cash Payments:
October
November
December
Quarter
Beg. A/P
October Purchases
November Purchases
December Purchases
Total payments
Cash Budget:
October
November
December
Quarter
Beg. Cash Bal.
+Cash Collections
=Cash Available
Cash Payments:
Cash paid for purchases
Cash paid for dividends
Total cash payments
Cash excess/(deficiency)
Borrowings
Repayments
Interest
Cash, ending bal.
Month
October
November
December
January
Sales in Units
30,000
25,000
40,000
30,000
Explanation / Answer
Answer a Sales Budget Oct Nov. Dec Total Sales in Units 30,000 25,000 40,000 95,000 Sp Per Unit 45 45 45 45 Total Sales in $ 1,350,000 1,125,000 1,800,000 4,275,000 Schedule of Expected Cash Collections from Sales Oct Nov. Dec Total Beginning A/R 250,000.00 250,000.00 Collection from Accounts Receivables Oct Sales 945,000.00 405,000.00 1,350,000.00 Nov Sales 787,500.00 337,500.00 1,125,000.00 Dec Sales - - 1,260,000.00 1,260,000.00 Total cash Collections 1,195,000.00 1,192,500.00 1,597,500.00 3,985,000.00 Answer b. Purchase Budget Oct Nov. Dec Total Sales In units 30,000 25,000 40,000 95,000 Add: Desired Ending Inventory in units 2,500 4,000 3,000 3,000 Total Needs 32,500 29,000 43,000 98,000 Less: Beginning Inventory in uints (3,000) (2,500) (4,000) (3,000) Required Purchases in Units 29,500 26,500 39,000 95,000 Cost per Unit 37.00 37.00 37.00 37.00 Total Purchases in $ 1,091,500 980,500 1,443,000 3,515,000 Answer c. Schedule of Cash payments to Suppliers Oct Nov. Dec Total Cash Payment Beginning A/P 42,000 42,000 Oct Purchases 545,750 545,750 1,091,500 Nov Purchases 490,250 490,250 980,500 Dec Purchases 721,500 721,500 Total Cash Payment to Suppliers 587,750 1,036,000 1,211,750 2,835,500 Answer d. Cash budget Oct Nov. Dec Total Opening cash Balance 56,000 363,250 319,750 56,000 Add: receipts Collection from Customers 1,195,000 1,192,500 1,597,500 3,985,000 Total Cash available 1,251,000 1,555,750 1,917,250 4,041,000 Less: Disbursements Cash paid for purcahses 587,750 1,036,000 1,211,750 2,835,500 Cash paid for Dividend 300,000 200,000 - 500,000 Total Disbursement 887,750 1,236,000 1,211,750 3,335,500 Cash excess (deficiency) 363,250 319,750 705,500 705,500 Borrowings - - - Repayments - - - - Ineterest - - - - Cash Ending Balance 363,250 319,750 705,500 705,500
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