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The information given below is the Peony Company's beginning balance sheet, estimates and policies, and the partially completed Master Budget for July and August. Use the information to answer the 22 Multiple Choice Questions, each asking for a missing number from the Master Budget ASSETS Current Assets Cash Accounts Receivable Prepaid Insurance Inventory Total Current Assets Peony Company Balance Sheet As of June 30, 2020 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities $ 5,000 Accounts Payable $ 11,000 15,000 Commissions Payable 6,000 Income Taxes Payable 3,000 1,600 Dividends Payable 5,000 21,600 Total Current Liabilities 25,000 70,000 Property Plant & Equipment Land Equipment Accumulated Depreciation Net PP & E Total Assets 60,400 85,000 (22,000) 123,400 $ 145,000 Long-term debt Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities & SE 40.000 10,000 50,000 $ 145,000 1. Expected sales are $60,000, S72,000, and $86,400, respectively in July, August, and September. All sales are on credit 2. The company collects 60% of sales in the month of the sale and 35% in the month after the sale, and the remaining 5% are never collected (i.e., they are uncollectable accounts receivable). 3. The cost of goods sold is equal to 55% of sales. 4. The company desires an ending inventory equal to 20% of the next month's cost of goods sold. 5. All purchases of inventory are on credit. The company pays for 70% of its purchases in the month of the purchase and 30% in the month after the purchase. 6. The company pays a 3% sales commission to its sales staff that is paid in the month after it is earned. 7. The company also incurs a utilities expense that is equal to $300 plus 1% of sales. This expense is paid in the month it is incurred. 8. Other Selling and Administrative Expenses, paid in the month they are incurred, include Advertising $1,100 per month, Salaries $1,400 per month and Depreciation $1,000 per month. 9. On July 1 the company purchased an insurance policy covering 24 months for $12,000. 10. The company pays interest on its long-term debt at the end of each month. Interest is equal to 1% of the balance of long-term debt at the beginning of the month. 11. On July 15 the company will invest $10,000 in the stock of another company. In addition, the company will pay cash for Land costing $7,500 on August 10. 12. On July 27 the company will pay a $5,000 cash dividend that is declared last May. 13. The Company is subject to a 25% income tax rate. The company Pays income taxes in the month after they are accrued (expensed) 14. The company requires a minimum cash balance of $5,000 and will use any cash surplus to pay down long-term debt. The company borrows cash in $1,000 increments. Sales Budget July August Peony Company S&A Expenses Budget July August September Variable Selling & Admin Expenses $ 60,000 $ 72,000 $ 86,400 Sales Commissions Utilities Bad Debts Total Variable S&A Expenses Credit Sales (4) 5,400 6,480 Cash Receipts: From Current Month Sales From Prior Month Sales Total Cash Receipts (1) $ 64,200 Inventory Purchases Budget Fixed Selling & Admin Expenses Utilities Advertising Salaries Depreciation Insurance Total Fixed S&A Expenses 1,100 1,400 1,000 July 1,100 1,400 1,000 (5) 4,300 August September $ 39,600 $ 47,520 4,300 COGS Desired Ending Inventory Total Inventory Needed Beginning Inventory Inventory Purchases (2) $ 41,184 900 1,020 Cash Payments for S&A Expenses Sales Commissions Utilities Bad debts Advertising Salaries Depreciation Insurance Total Payments for S&A Expenses 1,100 Cash Payments for Purchases For Current Month Purchases For Prior Month Purchases Total Cash Payments 1,100 1,400 1,400 (6) $ 38,524 (3) (7) $ 21,400 $ 5,320 Cash Budget Income Statement July August July August $ 60,000 $ 72,000 Beginning Balance Cash Receipts Total Cash Available 64,200 56,000 (11) Sales Less: Variable Costs COGS Variable S&A Expenses Contribution Margin Less: Fixed Costs Fixed S&A Expenses Interest Expense Pre-tax Income Less: Income Taxes 38,524 Cash Payments: For Inventory Purchases For S&A Expenses For Interest For Stock Investment For Land For Dividends For Taxes Total cash payments (8) $ 16,600 $ 20,640 4,150 5,160 $ 12,450 $ 15,480 Net Income 78,624 Surplus/(Deficit) New Borrowing/(Repayment) Ending Cash Balance (9) 28,000 $ 5,376 11,001 (10) 5,000 Balance Sheet July August July August (18) ASSETS Current Assets Cash Accounts Receivable Prepaid Insurance Inventory Total Current Assets (12) (13) 21,000 (14) LIABILITIES & STOCKHOLDERS EQUITY Current Liabilities Accounts Payable Commissions Payable Income Taxes Payable Dividends Payable Total Current Liabilities $ 11,796 (19) (20) (15) Long term debt (21) Property Plant & Equipment Stock Investment Land Equipment Accumulated Depreciation Total PP &E (16) 85,000 40,000 85,000 (17) Stockholders' Equity Common Stock Retained Earnings Total Stockholders Equity 40,000 (22) TOTAL ASSETS $ 178,196 $189,604 TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 178,196 $189,604 Multiple Choice Questions for Peony Company 1. What are Total Cash Receipts from customers for July? A. $60,000 B. $51,000 C. $36,000 D. $15,000 E. $41,250 2. What are Total Purchases of Inventory for July? A. $41,484 B. $42,520 C. $39,320 D. $38,524 E. $38,000 3. What are Total Cash Payments for Purchases of Inventory for August? A. $40,625 B. $38,524 C. $27,524 D. $31,924 E. $30,824 4. What is Total Bad Debts Expense for July? A. $5,400 B. $1,800 C. $3,600 D. S 0 E. $3,000 5. What is Total Insurance Expense for July? A. S 0 B. $12,000 C. $ 1,500 D. $ 500 E. S 1,000 6. What is the Total Cash Payment for Depreciation Expense for July? A. $23,000 B. $22,000 C. $21,000 D. $ 1,000 E. S 0 7. What is Total Cash Payment for Insurance Expense for August? A. S 0 B. S 1,500 C. $12,000 D. $ 1,000 E. $ 500 8. What is Total Interest Expense for July? A. $2,100 B. $7,000 C. $ 700 D. $1,400 E. $ 0 9. What is Total Cash Surplus (Deficit) for July? A. $ 11,001 B. $(22,624) C. $ 5,376 D. $ 98,000 E. $ 22,624 10. What is Total Net Borrowing (Repayment) for August? A. $ 5,000 B. $ 6,001 C. $ 0 D. $( 6,001) E. $(11,001) 11. What is the Contribution Margin for August? A. $21,600 B. $25,920 C. $72,000 D. $29,520 E. $15,480 12. What is the balance of Cash on August 31, 2020? A. $ 5,000 B. $98,000 C. $ 5,376 D. $78,624 E. $ 0 13. What is the balance of Accounts Receivable on August 31, 2020? A. $15,000 B. $21,000 C. $25,200 D. $ 3,600 E. $28,800 14. What is the balance of Prepaid Insurance on July 31, 2020? A. $11,500 B. $11,000 C. $ 500 D. $ 0 E. $12,000 15. What is the balance of Inventory on August 31, 2020? A. $41,184 B. $49,104 C. $ 7,920 D. $ 1,600 E. $ 9,504 16. What is the balance of Land on August 31, 2020? A. $138,900 B. $ 7,500 C. $ 60,400 D. $ 67,900 E. $ 92,500 17. What is the balance of Accumulated Depreciation, as reflected on the Balance Sheet, on July 31, 2020? A. $( 1,000) B. $(23,000) C. $( 2,000) D. $(21,000) E. $(24,000) 18. What is the balance of Accounts Payable on August 31, 2020? A. $35,151 B. $22,796 C. $11,000 D. $12,355 E. $11,796 19. What is the balance of Commissions Payable on July 31, 2020? A. $6,000 B. $7,800 C. $ 0 D. $1,800 E. $2,160 20. What is the balance of Income Taxes Payable on July 31, 2020? A. $5,160 B. $4,150 C. $ 0 D. $7,150 E. $3,000 21. What is the balance of Long-Term Debt on July 31, 2020? A. $28,000 B. $ 5,376 C. $98,000 D. $91,999 E. $70,000 22. What is the balance of Retained Earnings on August 31, 2020? A. $22,450 B. $10,000 C. $27,930 D. $32,930 E. $37,930

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