Q.1 Timberline Ltd. manufactures and sells a single product. The company is preparing a monthly budget for the first quarter of 20x1. The following information has been accumulated:
a. Projected sales for December 20x0 are $600,000. For the first quarter, the company believes that sales will increase by 10% each month over the previous month's sales. Sales will then remain constant for the second quarter. Sales on account are typically 75% of total sales. Records indicate that 55% of the credit sales are collected during the month of sale, and the remainder are collected during the following month.
b. Management has determined that an ending inventory equal to 25%of next month's sales is required to fit sales demands.
c. Cost of goods sold are typically 65% of sales. Inventory is purchased on account. Timberline pays for 20% of a month's purchases in the month of purchase and the remainder in the following month.
d. Monthly expenses are estimated as follows:
Training and development ? $10,000
Property and business taxes ? 1,000
Supervisor's salary ? 7,000
Depreciation ? 15,000
Insurance ? 16,000
Administrative salaries ? 25,000
Property and business taxes are paid on March 31st Sales commissions are 2% of gross sales.
e. Timberline has negotiated the purchase of the land beside its existing facility. The company expects to make the payment in January of the new year, in the amount of $250,000. This land will be used for a future expansion of the business. The company wants to pay for this purchase primarily with cash and short-term investments. If necessary, the remainder of the purchase will be financed using a short-term, three- month loan from the bank. Interest rates are expected to be 6%. All borrowing is considered to happen on the first day of the month and repayments are on the last day of the month. All borrowings and repayments should be in multiples of $1,000.
f. The company requires a minimum cash balance of $20,000.
g. Income taxes are estimated to be 25% of net income. The balance in the payable account will not be paid until April 20x1.
h. Timberline has a policy of paying dividends at the end of each quarter. The board of directors is planning on continuing its policy of declaring and paying dividends of $75,000 per quarter.
i. Estimated balances in the company's ledger accounts as of December 31, 20x0, are as follows:
Cash ? $ 92,000
Short-term investments ? 50,000
Accounts receivable ? 202,500
Inventory ? 107,250
Capital assets (net) ? 900,000
Total assets ? $1,351,750
Accounts payable ? $ 319,800
Income taxes payable 25,000
Property & business taxes payable ? 3,000
Share capital ? 800,000
Retained earnings ? 203,950
Total ? $1,351,750
Required:
1. Prepare a monthly master budget for Timberline for the first quarter of 20x1 including the following schedules:
a. Sales Budget
b. Cash Receipts Budget
c. Purchases Budget
d. Cash Disbursements Budget
e. Cash Budget
Where necessary, round to the nearest whole number. Adjust any rounding differences to inventory when completing the balance sheet.
2. Prepare the following financial statements:
- a budgeted income statement
- a budgeted statement of retained earnings
a budgeted balance sheet, as at March 31, 20x1)