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The following data relates to the operations of Picanny Corporation, a wholesale distributor of consumer goods:

Current assets as of December 31:

Cash $6,000

Accounts receivable $36,000

Inventory $9,800

Buildings and equipment, net $110,885

Accounts payable $32,550

Capital stock $110,000

Retained earnings $30,135

The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

Actual and budgeted sales data are as follows:

December (actual) $60,000

January $70,000

February $80,000

March $85,000

April $55,000

Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.

Each months ending inventory should equal 20% of the following months budgeted cost of goods sold.

One-quarter of a months inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.

Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.

Equipment will be acquired for cash: $3,000 in January and $8,000 in February.

Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with the local bank that allows the company to borrow in increments of $1,000 at the beginning if each month, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is no compounded. The company would as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required

Using the data above:

Complete the following schedule

Schedule of expected cash collections	January	February	March	Quarter
Cash Sales	$28,000
Credit Sales	36,000
Total Collections	$64,000

Complete the following:

Merchandise Purchases Budget	January	February	March	Quarter
Budgeted cost of goods sold	$49,000*
Add desired ending inventory	11,200
Total needs	60,200
Less beginning inventory	9,800
Required purchases	$50,400
*$70,000 sales x 70% = $49,000
$80,000 x 70% x 20% = $11,200

Schedule of Expected Cash disbursement Merchandise Purchases	January	February	March	Quarter
December purchases	$32,550			$32,550
January purchases	12,600	$37,800		$50,400
February purchases
March purchases
Total disbursements	$45,150
*Beginning balance of the accounts payable

3.

Complete the following schedule:

Schedule of Expected Cash Disbursements Selling and Administrative Expenses	January	February	March	Quarter
Commissions	$12,000
Rent	1,800
Other Expenses	5,600
Total Disbursements	$19,400

4.

Complete the following cash budget:

Cash Budget	January	February	March	Quarter
Cash Balance, beginning	$6,000
Add cash collections	64,000
Total cash available	70,000
Less cash disbursements:
For inventory	45,150
For operating expenses	19,400
For equipment	3,000
Total cash disbursements	67,550
Excess (deficiency) of cash	2,450
Financing
Etc.

5. Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter,

for the quarter ended March 31.

The example in the book is as follows:

Budgeted Income Statement for the Year Ended December 31, 2014

	Schedules
Sales	1	$2,000,000
Cost of goods sold*	1.6	1,300,000
Gross margin		700,000
Selling and administrative expenses	7	576,000
Net operating income		124,000
Interest expense	8	21,900
Net Income		$102,100

*100,00 cases sold x $13 per case = $1,300,000.

6. Prepare a balance sheet as of March 31.

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