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Just Looking · Jun 4, 2011, 07:16 PM

In March, the purchase requirements would have been:

60% of 40,000... 24,000
40% of 65,000... 26,000
Total units... 50,000
Cost per unit... $4
Total cost... $200,000

The disbursements are paid 50% in the current month and 50% in the next month. In March, $100,000 is paid and therefore $100,000 is in A/P - agrees to your problem.

ETA - So we know $100,000 will be paid in April. We will also pay 50% of the April purchases. Are you agreeing with me that figure is $316,000 in total for April?

I see what you are doing. You are taking the units sold times $4. What you want is that calculation where you figured 60% of the current month and 40% of the following month. Remember that sales units and purchases units are not the same.

Will2412 · Jun 4, 2011, 07:36 PM

Ok now Im good and lost. If we pay 50% in each month then why the multiplyer of 60% in March. Also why is it 40% of 65000 if that is Aprils data. I think this will be the last question of the night. I have been at this all day and still have some other stuff to get done for class. I will finish this up tomorrow after you explain this to me. Then tomorrow I will make my adjustments and try to upload the file for viewing. Will you be available tomorrow to aid in the completion of this project. I have until about 10pm CST to have it done. Thx, Will

Just Looking · Jun 4, 2011, 07:44 PM

First you look at what you purchased. Remember that you buy 40% of the next month's budgeted sales. You are looking at April's sales because you want to have 40% purchased in March and in inventory at the end of March. You buy 60% of the current month's budgeted sales. That is what you did here, with the exception that you have that $356,000 number instead of $316,000:

MERCHANDISE PURCHASES BUDGET:
April May June Quarter
Budgeted unit sales 65,000 100,000 50,000 215,000
Add desired ending inventory 40,000 20,000 12,000 12,000
Total needs 105,000 120,000 62,000 227,000
Less beginning inventory 16,000 40,000 20,000 16,000
Required purchases 89,000 80,000 42,000 211,000
Cost of purchases @ $4 per unit $ 356,000.00 $ 320,000.00 $ 168,000.00 $ 844,000.00

You did this for April - June. To compute March, you would have:

60% of 40,000... 24,000
40% of 65,000... 26,000
Total units... 50,000
Cost per unit... $4
Total cost... $200,000

This $200,000 is the amount that is paid 50% in March and 50% in April.

I'll be around.

Will2412 · Jun 4, 2011, 07:52 PM

Outstanding, I thank you so much. I am really trying to get a grasp of this accounting knowledge, but it is overwhelming at times. I have been thrust in to this class with just basic knowledge of accounting principles and to top it all off it is an accelerated course which makes it even that much more challenging. With your help I know I will succeed. Thank you once again and have a great night.

Just Looking · Jun 4, 2011, 07:59 PM

Thanks. I appreciate it.

Will2412 · Jun 4, 2011, 08:04 PM

Ok see how these adjustments look. I will talk with you tomorrow. Goodnight

MERCHANDISE PURCHASES BUDGET:
April May June Quarter
Budgeted unit sales 65,000 100,000 50,000 215,000
Add desired ending inventory 40,000 20,000 12,000 12,000
Total needs 105,000 120,000 62,000 227,000
Less beginning inventory 26,000 40,000 20,000 26,000
Required purchases 79,000 80,000 42,000 201,000
Cost of purchases @ $4 per unit $316,000.00 $320,000.00 $168,000.00 $804,000.00

BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:
April May June Quarter
Accounts payable $100,000.00 $100,000.00
April purchases $130,000.00 $130,000.00 $260,000.00
May purchases $200,000.00 $200,000.00 $400,000.00
June purchases $100,000.00 $100,000.00
Total cash payments $230,000.00 $330,000.00 $300,000.00 $360,000.00

Just Looking · Jun 4, 2011, 08:08 PM

The Merchandis Purchases Budget is right.

You need to work on the disbursements. Per your Purchases Budget for April, you need to buy $316,000. Half of that will be paid in April and half in May. Therefore your total disbursement in April will be the $100,000 from March and the $158,000 from April = $258,000

Will2412 · Jun 5, 2011, 07:13 AM

Morning. Ok well I went through some of the figures and think I did the budgeted cash disbursements for merchandise purchases correctly. I also started n on the 3 month cash budget. I am hungup now here. I understand that all money financed is to be paid in full in the following month. However as the mth of may unfolds I come to see that we have a surplus of cash this month ($76400) however when we pay back previous mth finance we are at a point of needing to finance money to cover next mth, so I am a bit lost here. Thx

BUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:
April May June Quarter
Accounts payable $100,000.00 $100,000.00
April purchases $158,000.00 $158,000.00 $316,000.00
May purchases $160,000.00 $160,000.00 $320,000.00
June purchases $84,000.00 $84,000.00
Total cash payments $258,000.00 $318,000.00 $244,000.00 $416,000.00

EARRINGS UNLIMITED
CASH BUDGET
FOR THE THREE MONTHS ENDING JUNE 30
April May June Quarter
Cash balance $74,000.00 $50,400.00
Add collections from customers $436,000.00 $695,000.00 $86,500.00 $595,600.00
Total cash available $510,000.00 $745,400.00 $86,500.00 $1,341,900.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $2,600.00 $4,000.00 $2,000.00 $8,600.00
Utilities $7,000.00 $7,000.00 $7,000.00 $7,000.00
Equipment purchases $16,000.00 $40,000.00
Dividends paid $15,000.00
Total Disbursements $606,600.00 $669,000.00 $373,000.00 $339,600.00

Excess (deficiency) of receipts
Over disbursements (96,600) 76,400
Financing:
Borrowings 146,600
Repayments 147,000
Interest
Total financing 147,000 (70,600)

Cash balance, ending 50,400

Just Looking · Jun 5, 2011, 07:48 AM

Budgeted cash disbursements are good.

Check your sales commissions. It looks like you took 4% of units rather than sales. (.04*65,000=2,600 vs .04*650,000=26,000). Other than that, you have the right idea. Why don't you fix the commissions and then I'll check May and June.

Originally Posted by Will2412

Morning. Ok well I went thru some of the figures and think I did the budgeted cash disbursements for merchandise purchases correctly. I also started n on the 3 month cash budget. I am hungup now here. I understand that all money financed is to be paid in full in the following month. However as the mth of may unfolds I come to see that we have a surplus of cash this month ($76400) however when we pay back previous mth finance we are at a point of needing to finance money to cover next mth, so I am a bit lost here. Thx

Not so sure I agree with the way this is written. You have to have a balance of $50,000. We know you will have to borrow money to get to $50,000 in April. After you do the May work, if you have a surplus you can pay down on the borrowed amount. If you fall below $50,000, you will have to borrow more. Why don't you fix the commissions and see where you are at? The problem states: All borrowing is done at the beginning of a month, and repayments are made at the end of a month. You will only repay at the end of the month is there are surplus funds, but remember the cash balance has to stay at $50,000.

Will2412 · Jun 5, 2011, 08:09 AM

OK corrected the commissions and understand the error I made. Here are the figures as well as the beginning of the cash budget.
CASH BUDGET
FOR THE THREE MONTHS ENDING JUNE 30
April May June Quarter
Cash balance $74,000.00 $50,000.00
Add collections from customers $436,000.00 $695,000.00 $86,500.00 $595,600.00
Total cash available $510,000.00 $745,000.00 $86,500.00 $1,341,500.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $26,000.00 $40,000.00 $20,000.00 $86,000.00
Utilities $7,000.00 $7,000.00 $7,000.00 $7,000.00
Equipment purchases $16,000.00 $40,000.00
Dividends paid $15,000.00
Total Disbursements $630,000.00 $705,000.00 $391,000.00 $417,000.00

Excess (deficiency) of receipts
Over disbursements (120,000) 40,000
Financing:
Borrowings 170,000
Repayments 170,000
Interest
Total financing 170,000

Cash balance, ending 50,000

Just Looking · Jun 5, 2011, 08:53 AM

Okay, looks good through the $40,000 at the end of May. If you'll make your adjustment for the loan at the end of May and complete June, you will be done with part 2.

Will2412 · Jun 5, 2011, 10:07 AM

Ok here is what I have so far let me know how this looks
EARRINGS UNLIMITED
CASH BUDGET
FOR THE THREE MONTHS ENDING JUNE 30
April May June Quarter
Cash balance $74,000.00 $50,000.00 $50,000.00
Add collections from customers $436,000.00 $695,000.00 $86,500.00 $595,600.00
Total cash available $510,000.00 $745,000.00 $136,500.00 $1,391,500.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $26,000.00 $40,000.00 $20,000.00 $86,000.00
Utilities $7,000.00 $7,000.00 $7,000.00 $21,000.00
Equipment purchases $16,000.00 $40,000.00 $56,000.00
Dividends paid $15,000.00 $15,000.00
Total Disbursements $630,000.00 $705,000.00 $391,000.00 $918,000.00

Excess (deficiency) of receipts
Over disbursements (120,000) 40,000 (254,500) (334,500)
Financing:
Borrowings 170,000 10,000 305,000 485,000
Repayments (485,000) (485,000)
Interest (37,450) (37,450)
Total financing 170,000 10,000 305,000 (485,000)

Cash balance, ending 50,000 50,000 50,000 50,000

Just Looking · Jun 5, 2011, 10:44 AM

Look at your June collections. It's off by a decimal. Sorry I didn't notice that before. The numbers were good, but 1/10th of what they should be - I'm wondering if you used units versus sales dollars. I wish it was easier to do columns in here.

Will2412 · Jun 5, 2011, 11:01 AM

Ok I see that as well, I was short a zero on the 86500 it should have been 865000. I mad another attempt at it and think I have this part down. Pleas let me know your input so I may attempt moving on to the income statement. I totally understand about the whole column thing, I wish there were away to just attach a file to work out of. Here is my data, Thk you

April May June Quarter
Cash balance $74,000.00 $50,000.00 $50,000.00 $174,000.00
Add collections from customers $436,000.00 $695,000.00 $865,000.00 $595,600.00
Total cash available $510,000.00 $745,000.00 $915,000.00 $2,170,000.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $26,000.00 $40,000.00 $20,000.00 $86,000.00
Utilities $7,000.00 $7,000.00 $7,000.00 $21,000.00
Equipment purchases $16,000.00 $40,000.00 $56,000.00
Dividends paid $15,000.00 $15,000.00
Total Disbursements $630,000.00 $705,000.00 $635,000.00 $918,000.00

Excess (deficiency) of receipts
Over disbursements (120,000) 40,000 280,000 200,000
Financing:
Borrowings 170,000 10,000 180,000
Repayments (180,000) (180,000)
Interest 16,100 16,100
Total financing 170,000 10,000 (163,900) (16,100)

Cash balance, ending 50,000 50,000 116,100 116,100

Just Looking · Jun 5, 2011, 11:20 AM

We're getting there. It looks like you added the interest payment instead of subtracting it.. Also not understanding how you computed your interest. It is 12% a year, so 1% a month. Remember the loans were taken at the end of the month/first day of following month. So, for example, on the $170k you only have 2 months of interest - May and June.

Will2412 · Jun 5, 2011, 12:10 PM

Ok I think I figured that out. I still know something is wrong though. I was given comparisson data to check my answers with. My first 2 checks work but the last 2 do not. Here are the answers I was provided
Total cash collections: $1,996,000

Cost of purchases: $804,000

Cash balance ending quarter: $94,700

Total liabilities and stockholders equity: $1,618,700

I have taken a chance and gone through the rest of the assignment. Please check this and let me know what else is to be done. I mad corrections to the cash budget interest and also made an adjustment to commssions as well can you please check that. Here is my data for the cash budget, income statement and the balance sheet. I know there still exists problems just can't find them. I will be back shortly, quick errand to run. Thanks and ttys

CASH BUDGET
FOR THE THREE MONTHS ENDING JUNE 30
April May June Quarter
Cash balance $74,000.00 $50,000.00 $50,000.00 $174,000.00
Add collections from customers $436,000.00 $695,000.00 $865,000.00 $595,600.00
Total cash available $510,000.00 $745,000.00 $915,000.00 $2,170,000.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $26,000.00 $40,000.00 $20,000.00 $86,000.00
Utilities $7,000.00 $7,000.00 $7,000.00 $21,000.00
Equipment purchases $16,000.00 $40,000.00 $56,000.00
Dividends paid $15,000.00 $15,000.00
Total Disbursements $630,000.00 $705,000.00 $635,000.00 $918,000.00

Excess (deficiency) of receipts
over disbursements (120,000) 40,000 280,000 1,252,000
Financing:
Borrowings 170,000 10,000 180,000
Repayments 180,000 (180,000)
Interest 3,500 (3,500)
Total financing 170,000 10,000 183,500 (363,500)

Cash balance, ending 50,000 50,000 463,500 1,615,500

EARRINGS UNLIMITED
BUDGETED INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30

Sales 2,150,000
Variable expenses:
Cost of goods sold 860,000
Commissions 86,000 946,000
Contribution Margin 1,204,000
Fixed expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 21,000
Insurance 3,000
Depreciation 14,000 362,000
Net operating income 842,000
Interest expense (3,500)
Net income 845,500

EARRINGS UNLIMITED
BUDGETED BALANCE SHEET
JUNE 30

Assets:

Cash 94,700
Accounts receivable (see below) 1,000,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment, net 95,000
Total assets 1,314,700

Liabilities and Stockholders' Equity

Accounts payable, purchases 100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings (see below)
Total liabilities and stockholders' equity 915,000

Accounts receivable at June 30:
May sales x ?% 900,000
June sales x ?% 100,000
Total 1,000,000

Retained earnings at June 30:
Balance, March 31 580,000
Add net income 845,500
Total 1,425,500
Less dividends declared 15,000
Balance, June 30 1,410,500

Just Looking · Jun 5, 2011, 12:53 PM

The problem with your May cash is you are adding:

Excess of receipts... $280,000
Pay off loan... 180,000
Pay interest... 3,500

Your balance... $463,500

You are paying the loan and interest, and that will make your cash decrease. The only way I can make the $94,700 figure work is to charge 3 months of interest on the $170,000 and 2 months on the $10,000. Since we didn't borrow the money until the end of the month, that doesn't make sense. Did you get those figures from another student, the teacher, the textbook?

You are good through the contribution margin, but you are only showing one month's worth of the fixed expenses. The IS is for the 3 months ending June 30.

I'll let you make those corrections before I check the Balance Sheet.

Will2412 · Jun 5, 2011, 01:46 PM

Ok I made the adjustment by excluding the excess of receipts to include only the loan payment and interest. I also made the adjustment on the interest to include 3 months for Apr and 2 months interest for may. My total for May is now 465300 and the interest is at 5300. I am at a loss on how to get the figure of 94700. These figures were uploaded by the instructor to our documents. Here is what my correction looks like.

April May June Quarter
Cash balance $74,000.00 $50,000.00 $50,000.00 $174,000.00
Add collections from customers $436,000.00 $695,000.00 $865,000.00 $595,600.00
Total cash available $510,000.00 $745,000.00 $915,000.00 $2,170,000.00

Less Disbursements
Merchandise purchases $258,000.00 $318,000.00 $244,000.00 $416,000.00
Advertising $200,000.00 $200,000.00 $200,000.00 $200,000.00
Rent $18,000.00 $18,000.00 $18,000.00 $18,000.00
Salaries $106,000.00 $106,000.00 $106,000.00 $106,000.00
Commissions $26,000.00 $40,000.00 $20,000.00 $86,000.00
Utilities $7,000.00 $7,000.00 $7,000.00 $21,000.00
Equipment purchases $16,000.00 $40,000.00 $56,000.00
Dividends paid $15,000.00 $15,000.00
Total Disbursements $630,000.00 $705,000.00 $635,000.00 $918,000.00

Excess (deficiency) of receipts
Over disbursements (120,000) 40,000 280,000 1,252,000
Financing:
Borrowings 170,000 10,000 180,000
Repayments 180,000 (180,000)
Interest 5,300 (5,300)
Total financing 170,000 10,000 185,300 (365,300)

Cash balance, ending 50,000 50,000 465,300 1,617,300

Just Looking · Jun 5, 2011, 01:58 PM

I showed you above what you are doing wrong. For June:

Cash bal... 50,000
Collections... 865,000
Available... 915,000
Disbursements... (635,000)
Sub-total... 280,000 (you were right to this point)
Paid loan... (180,000)
Paid interest... (5,300)
Cash bal... 94,700

You are showing a total for the 3 months for $1,617,300. You don't need that as it has no meaning. Your balance at 6/30 is $94,700.

You'll need to correct your Income Statement now re the fixed expenses. I still don't agree with your teacher's interest amount, but it isn't that big a deal.

Okay on to the BS - I worked it out and have the balance your teacher has (using her interest). You need to go step by step. Almost all of the numbers will change from the original, except Capital Stock. As an example, P&E has new purchases and depreciation. It took me a while to do this, so don't be surprised if this takes a while.

ETA-Hah - it just occurred to me. I kept thinking the loan was taken out at the end of the month based on the cash flow, but it was taken out at the beginning of the month based on the budget. Okay - I agree with the interest. Hope I didn't confuse you there. So, it's 1 month of $170,000 and 2 months of $180,000 at 1% per month. :)

Will2412 · Jun 5, 2011, 03:12 PM

Ok I resolved the issue and figured out the interest coming up with 94700. Got simple mistakes can cause major problems for sure. Ok I think I have the income statement correct producing a new net income of 836700. As for the BS well this is my problem. I don't understand what to do at all here. If I perform calculations one way I end up less than the check amount. If I do it another I end up way over the check data. Can you give me some guidance as to exactly what I need to do to fiish this project. I am so close but would not be anywhere near here without you.
I will again send my data

EARRINGS UNLIMITED
BUDGETED INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30

Sales 2,150,000
Variable expenses:
Cost of goods sold 860,000
Commissions 86,000 946,000
Contribution Margin 1,204,000
Fixed expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 21,000
Insurance 3,000
Depreciation 14,000 362,000
Net operating income 842,000
Interest expense (5,300)
Net income 836,700

EARRINGS UNLIMITED
BUDGETED BALANCE SHEET
JUNE 30

Assets:

Cash 94,700
Accounts receivable (see below) 1,000,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment, net 95,000
Total assets 1,314,700

Liabilities and Stockholders' Equity

Accounts payable, purchases 100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings (see below) 1,401,700
Total liabilities and stockholders' equity 2,316,700

Accounts receivable at June 30:
May sales x ?% 900,000
June sales x ?% 100,000
Total 1,000,000

Retained earnings at June 30:
Balance, March 31 580,000
Add net income 836,700
Total 1,416,700
Less dividends declared 15,000
Balance, June 30 1,401,700