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    lushinga's Avatar
    lushinga Posts: 3, Reputation: 1
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    #1

    Jun 21, 2008, 03:09 PM
    Cash Budget; Income Statement; Balance Sheet
    The balance sheet of Phototec, Inc. a distributor of photographic supplies, as of May 31 is given below:
    PHOTOTEC, INC,
    Way 31
    Assets
    Cash $ 8,000
    Accounts receivable 72,000
    Inventory 30,000
    Buildings and equipment, net of depreciation 500,000
    Total assets $610,000Liabilities and Stockholders' Equity
    Accounts payable, suppliers $ 90,000
    Note payable 15,000
    Capital stock, no par 420,000
    Retained earnings 85,000
    Total liabilities and stockholders' equity . $610,000

    Phototec, Inc. has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead-namely, June. The company has assembled the following budgeted data relating to June:
    a. Sales are budgeted at $250,000. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the month following. All of the May 31 accounts receivable will be collected in June.

    b. Purchases of inventory are expected to total $200,000 during June. These purchases will al be on account. Forty percent of all inventory purchases are paid for in the month of purchase; the remainder is paid in the following month. All of the May 31 accounts payable to suppliers will be paid during June.

    c. The June 30 inventory balance is budgeted at $40,000.

    d. Operating expenses for June are budgeted at $51,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

    e. The note payable on the May 31 balance sheet will be paid during June. The company's interest expense for June (on all borrowing) will be $500, which will be paid in cash.

    f. New warehouse equipment costing $9,000 will be purchased for cash during June.

    g. During June, the company will borrow $18,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

    Required:

    1. Prepare a cash budget for June. Support your budget with schedules showing budgeted cash receipts from sales and budgeted cash payments for inventory purchases.
    2. Prepare a budgeted income statement for June. Use the income statement format as shown Schedule 9.
    3. Prepare a budgeted balance sheet as of June 30.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jun 22, 2008, 02:41 AM
    Oh sigh. Did you expect someone to just do all this work for you? I'm a lot more willing to spend the time going through something like this when I see the poster has made some sort of effort to do the same.

    Please read:
    https://www.askmehelpdesk.com/financ...-b-u-font.html
    lushinga's Avatar
    lushinga Posts: 3, Reputation: 1
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    #3

    Jun 22, 2008, 05:30 PM
    1 PHOTOTEC, INC.

    Schedule of Cash Receipts
    Cash Sales June $250,000
    Collections on Accounts Receivable
    May 31st balance 72,000
    June 155,000
    Total Cash Receipts $227,000

    Schedule of Cash Payments for purchases
    May 31 Accounts Payable Balance $90,000
    June Purchases 80,000
    Total Cash Payments $170,000


    PHOTOTEC, INC.
    June Cash Budget

    Cash balance, beginning $107,000
    Add receipts from customers $72,000
    Total Cash Available $179,000
    Less Disbursements:
    Purchase of Inventory 80000
    Operating Expenses 49000
    Purchase of Equipment 9000
    Total Cash Disbursement 138,000
    Excess of receipts over disbursement 41000
    Financing:
    Borrowing Note 18,000
    Repayment Note 15,000
    Interest 500
    Total Financing 33,500
    Cash balance, ending $7,500


    2 PHOTOTEC, INC.
    June Income Statement
    Sales $250,000
    Cost of Goods Sold:
    Beginning Inventory 30000
    Add Purchases 200000
    Goods available for sale 230000
    Ending Inventory 40000
    Cost of good sold 190000
    Gross Margin 60000
    Selling & Administrative expenses 53000
    Net operating income 7000
    Interest expense 500
    Net Income $6,500


    3 PHOTOTEC, INC.
    Balance Sheet June 30


    Assets
    Cash $7,500
    Accounts receivable 95,000
    Inventory 40,000
    Buildings and equipment, net of depreciation 507,000
    Total assets $649,500

    Liabilities and Stockholders' Equity
    Accounts payable $120,000
    Note payable 18,000
    Capital stock, no par 420,000
    Retained earnings 91,500
    Total liabilities and stockholders' equity $649,500
    sparkletts's Avatar
    sparkletts Posts: 3, Reputation: 1
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    #4

    Jul 11, 2008, 08:59 PM
    Hi, I'm having trouble with this question, too. Are you sure that the beginning balance for the cash budget is $107,000? Isn't it $8,000, which was the ending cash balance on May's balance sheet?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #5

    Jul 12, 2008, 11:40 PM
    Quote Originally Posted by sparkletts
    Hi, I'm having trouble with this question, too. Are you sure that the beginning balance for the cash budget is $107,000? Isn't it $8,000, which was the ending cash balance on May's balance sheet?
    Correct.

    lushinga, not sure where you came up with the beginning balance for cash. What is interesting is that your ending balance is correct, except you have many errors in your cash flow. There isn't any way to get the correct ending balance of 7500 with the numbers in the budget. I can only imagine you had a check figure to ending cash or something and that you've worked backwards and "forced" the beginning balance to make it work. Take the actual beginning balance and work it through. If you use that cash number on the balance sheet, you won't balance. This is how we know something is wrong and we go back and find it. If I don't balance, I cannot simply "force" a new number as a beginning balance to make it work. (i.e. you should have known something was wrong, even if you didn't know what it was.)

    The income statement is fine and the balance sheet is fine. But again, the balance sheet is only fine because you have the correct ending balance for cash. But that should be coming from the cash budget, which should have a correct beginning balance.

    For both cash collections and disbursements, you have only included one number instead of everything that happened. Read through the sections on when the sales are collected and when the inventory is paid. Your cash budget doesn't agree with your schedules at the top. You say total cash payments of 170,000 but then only include 80,000 in the cash budget, etc. The schedules are supposed to show where the numbers in the cash budget came from, so these must agree. Then there's the cash receipts... Where did the 155,000 come from? 60,000 cash sales + 50% collected in the same month on the credit sales. That doesn't equal 155,000.

    It says the operating expenses are "exclusive" of the depreciation, not "including" it. You're being inconsistent between the cash budget and the income statement. For the cash you've treated the 51,000 like it's including depreciation and taken it off. For the income statement, you've treated it like it's not including depreciation, added it on and gotten 53,000. Are total operating expense 51,000 or 53,000?

    "Financing" section of the cash budget: Borrowing money and paying money back are not both negative cash flows.

    The real problem is in the cash budget, so that's what you need to look at. The two financial statements are fine.
    sparkletts's Avatar
    sparkletts Posts: 3, Reputation: 1
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    #6

    Jul 15, 2008, 03:16 PM
    Okay, that's good. I am a little confused though as to where I should list accounts payable. Should that count under 'financing' or a new listing under 'cash disbursements'? Also, how else do I find retained earnings other than simply assigning RE the value that would make A = L + SE?
    kennynwf's Avatar
    kennynwf Posts: 1, Reputation: 1
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    #7

    Mar 9, 2011, 08:34 AM
    The corrected Cash Balance should be:

    Cash balance, beginning $8,000
    Add receipts from customers $227,000
    Total Cash Available $235,000
    Less Disbursements:
    Purchase of Inventory $170,000
    Selling and Admin Expense $51,000
    Purchase of Equipment $9,000
    Total Cash Disbursement $230,000
    Excess of receipts over disbursement $5,000
    Financing:
    Borrowing Note $18,000
    Repayment Note ($15,000)
    Interest ($500)
    Total Financing $2500
    Cash balance, ending $7,500
    peshi's Avatar
    peshi Posts: 1, Reputation: 1
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    #8

    Mar 15, 2011, 09:30 AM
    Thanks all of you you are very kind keep it up. You are saviors indeed you show how you concentrated in class.
    From peshi in Africa Uganda. Generally that above was the answer l worked out. Please lets keep trying.
    nooretautaya's Avatar
    nooretautaya Posts: 1, Reputation: 1
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    #9

    Feb 18, 2015, 02:38 PM
    Hi,

    It seems you have omitted the dividend paid during the month of June.
    ma0641's Avatar
    ma0641 Posts: 15,681, Reputation: 1012
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    #10

    Feb 18, 2015, 08:02 PM
    Welcome to AMHD. However, considering this was 4 years ago, makes little difference. Please look at the date of the original post.

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