The following data relate to the operations of Lim 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
Common shares $100,000
Retained earnings 30,135
a. The gross margin is 30% of sales.
b. Actual and budgeted sales data are as follows:
December (actual) $60,000
January $70,000
February $80,000
March $85,000
April $55,000
c. 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.
d. Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold.
e. One-quarter of a month's 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.
f. 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.
g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.
h. Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of 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 not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
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Required:
Using the data above:
1. 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
2. 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 × 70% = $49,000.
†$80,000 × 70% × 20% = $11,200.
Schedule of Expected Cash Disbursements-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:
January February March Quarter
Cash balance, beginning $6,000
Add cash collections 64,000
Total cash available 70,000
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.
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5. Prepare an absorption costing income statement, similar to the one shown inSchedule 9 on page 367, for the quarter ended March 31.
6. Prepare a balance sheet as of March 31.