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Question

. Preparing an inventory purchases budget

Tucker Lighting Company sells lamps and other lighting fixtures. The purchasing

department manger prepared the following inventory purchases budget. Tucker Lighting’s policy

is to maintain an ending inventory balance equal to 10 percent of the following month’s cost of

goods sold. April’s budgeted cost of goods sold is \$85,000.

January

February

March

Budgeted cost of goods sold \$70,000

\$74,000

\$80,000

Plus: Desired ending inventory

7,400

?

?

Inventory needed

\$77,400

?

?

Less: Beginning Inventory

18,000

?

?

Required purchases (on account)\$59,400

?

?

(a) Complete the inventory purchases budget by filling in the missing amounts.

(b)

Determine the amount of cost of goods sold the company will report on its first quarter

pro forma income statement. (c) Determine the amount of ending inventory the company

will report on its pro forma balance sheet at the end of the first quarter.

2. Preparing a cash budget: The accountant for Lori’s Dress Shop prepared the following

cash budget. Lori’s desires to maintain cash cushion of \$14,000 at the end of each month.

Funds are assumed to be borrowed and repaid on the last day of each month. Interest is

charged as the rate of 2 percent per month.

Cash Budget

July

August

September

Section 1: Cash receipts

Beginning cash balance

\$43,000

\$?

\$?

183,000

196,000

240,200

Total cash available (a)

\$226,000

?

?

Section 2: Cash payments

For inventory purchases

163,646

139,900

172,474

For S&A expenses

54,000

62,060

61,536

For interest expense

0

?

?

Total budgeted disbursements (b) 217,646

?

?

Section (3): Financing activities

Surplus (shortage)

8,354

?

?

?

?

Ending cash balance (a – b + c)

\$14,000

\$14,000

\$14,000

(a) Complete the cash budget by filling in the missing amounts. Round all computations to

the nearest whole dollar.

(b) Determine the amount of net cash flows from operating activities Lori’s will report on the

third quarter pro forma statement of cash flows.

(c)

Determine the amount of net

cash flows from financing activities Lori’s will report on the third quarter pro forma

statement of cash flows.

3. Preparing pro forma income statements with different assumptions – Jim Denty, the

controller of Grime Corporation, is trying to prepare a sales budget for the coming year.

The income statements for the last four quarters follow:

First Qt.

Second Qt.

Third Qt.

Fourth Qt.

Total

Sales revenue

\$170,000

\$200,000

\$210,000

\$260,000

\$840,000

Cost of goods sold

102,000

120,000

126,000

156,000

504,000

Gross profit

68,000

80,000

84,000

104,000

336,000

17,000

20,000

21,000

26,000

84,000

Net income

\$51,000

\$60,000

\$63,000

\$78,0 \$252,000

Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative

expenses are about 10mpercent of sales revenue. Gene Moreno, the chief executive officer, told

Mr. Denty that he expected sales next year to be 10 percent above last year’s level. However,

Sarah Toole, the vice president of sales, told Mr. Denty that she believed sales growth would be

only 5 percent. (a) prepare a pro forma income statement including quarterly budgets for the

coming year using Mr. Moreno’s estimate. (b) Prepare a pro forma income statement including

quarterly budgets for the coming year using Ms. Toole’s estimate. (c) Explain why two executive

officers in the same company could have different estimates of future growth.

4. Preparing a sales budget and schedule of cash receipts-Dorough Pointers Inc. expects to

begin operations on January 1, 2009; it will operate as a specialty sales company that

sells laser pointers over the Internet. Dorough expects sales in January 2009 to total

\$120,000 and to increase 10 percent per month in February and March. All sales are on

account. Dorough expects to collect 70 percent of account receivable in the month of

sale, 20 percent in the month following the sale, and 10 percent in the second month

following the sale. (a) Prepare a sales budget for the first quarter of 2009, (b) Determine

the amount of sales revenue Dorough will report on the first 2009 quarterly pro forma

income statement, (c) Prepare a cash receipts schedule for the first quarter of 2009, (d)

Determine the amount of accounts receivable as of March 31, 2009.

5. Preparing pro forma income statements with different assumptions – Top executive

officers of Leach Company, a merchandising firm, are preparing the next year’s budget.

The controller has provided everyone with the current year’s projected income statement.

Current Year

Sales revenue

\$2,600,000

Cost of goods sold

1,690,000

Gross profit

910,000

325,000

Net income

\$585,000

Cost of goods sold is usually 65 percent of sales revenue, and selling and administrative

expenses are usually 10 percent of sales plus a fixed cost of \$65,000. The president has

announced that the company’s goal is to increase net income by 15 percent. (a) What percentage

increase in sales would enable the company to reach its goal? Support your answer with a pro

forma income statement. (b) The market may become stagnant next year, and the company does

not expect an increase in sales revenue. The production manger believes that an improved

production procedure can cut cost of goods sold by 2 percent. What else can the company do to

reach its goal? Prepare a pro forma income statement illustrating your proposal. (c) The company

decides to escalate its advertising campaign to boost consumer recognition, which will increase

selling and administrative expenses to \$405,000. With the increased advertising, the company

expects sales revenue to increase by 15 percent. Assume that cost of goods remains a constant

proportion of sales. Can the company reach its goal?

6. Preparing a cash budget – McBride Medical Clinic has budgeted the following cash

flows.

January

February

March

Cash receipts

\$101,000

\$108,000

\$125,000

Cash payments

For inventory purchases 92,000

72,000

83,000

For S&A expenses

30,000

32,000

26,000

McBride Medical had a cash balance of \$7,000 on January1. The company desires to maintain a

cash cushion of \$5,000. Funds are assumed to be borrowed, in increments of \$1,000, and repaid

on the last day of each month; the interest rate is 1 percent per month. McBride pays its vendor

on the last day of the month also. The company had a \$30,000 beginning balance in its line of

credit liability account.

(a) Prepare a cash budget. (Round all computations to the nearest whole dollar.)

Paper#6013 | Written in 23-Dec-2015

Price : \$25