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Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 2001 sales $1,500,000 Cost of goods sold 900,000 Gross profit $ 600,000 Operating expenses: Salaries, wages, commissions $300,000 Rent, taxes and other fixed expenses 165,000 534,000 income from operations $ 59,820. Interest expense accrued is then $5,300 + $880 = $6,183, rounded to $6,180.
Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 2001 sales $1,500,000 Cost of goods sold 900,000 Gross profit $ 600,000 Operating expenses: Salaries, wages, commissions $300,000 Rent, taxes and other fixed expenses 165,000 534,000 income from operations $ 59,820. Interest expense accrued is then $5,300 + $880 = $6,183, rounded to $6,180.
Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 2001 sales $1,500,000 Cost of goods sold 900,000 Gross profit $ 600,000 Operating expenses: Salaries, wages, commissions $300,000 Rent, taxes and other fixed expenses 165,000 534,000 income from operations $ 59,820. Interest expense accrued is then $5,300 + $880 = $6,183, rounded to $6,180.
7-A1 (60-90 min.) 1. Exhibit I VIDEO HUT, INC. Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 2001 Sales $1,500,000 Cost of goods sold (.60 x $1,500,000) 900,000 Gross profit $ 600,000 Operating expenses: Salaries, wages, commissions $300,000 Other expenses 60,000 Depreciation 9,000 Rent, taxes and other fixed expenses 165,000 534,000 Income from operations. $ 66,000 Interest expense* 6,180 Net income $ 59,820 * From Exhibit II, $318,000 of principal is outstanding during June and July, and $318,000 - $212,000 = $106,000 is outstanding during August. The interest expense accrued is then $318,000 x .10 x 2/12 + $106,000 x .10 x 1/12 = $5,300 + $880 = $6,183, rounded to $6,180. Note that this accrual is independent of the cash interest actually paid ($3,530 and $1,530). Exhibit II VIDEO HUT, INC. Mall of America Store Budgeted Statement of Cash Receipts and Disbursements For the Three Months Ending August 31, 2001 June July August Beginning cash balance $29,000 $25,000 $25,470 Minimum cash balance desired 25,000 25,000 25,000 (a) Available cash balance $ 4,000 $ 0 $ 470 Cash receipts & disbursements: Collections from customers (schedule b) $ 376,000 $ 607,000 $454,000 Payments for merchandise (schedule d) (420,000) (240,000) (240,000) Fixtures (55,000) - - Salaries, wages, commissions, @ 20% x sales (140,000) (80,000) (80,000) Other variable expenses, @ 4% x sales (28,000) (16,000) (16,000) Fixed expenses (55,000 ) ( 55,000 ) ( 55,000) (b) Net cash receipts & disbursements $(322,000 ) $ 216,000 $63,000 Excess (deficiency) of cash before financing (a + b) (318,000 ) 216,000 63,470 Financing: Borrowing, at beginning of period$ 318,000 $ - $ - Repayment, at end of period - (212,000) (61,000) Interest, 10% per annum - (3,530)* (1,530)** (c) Total cash increase (decrease) from financing $318,000 $(215,530) $(62,530) (d) Ending cash balance (beginning balance + b + c) $ 25,000 $ 25,470 $ 25,940 *10% x $212,000 x 2/12 = $3,533, rounded to $3,530 **10% x $ 61,000 x 3/12 = $1,525, rounded to $1,530. Exhibit III VIDEO HUT, INC. Mall of America Store Budgeted Balance Sheet August 31, 2001 Assets Equities Cash (Exhibit II) $ 25,940 Accounts payable $180,000 Accounts receivable* 432,000 Notes payable 45,000** Merchandise inventory 180,000 Accrued interest payable 1,120*** Total current assets $637,940 Total current liabilities$226,120 Net fixed assets: Owners' equity: $168,000 less $511,000 plus net depreciation of $9,000 159,000 income of $59,820 570,820 Total assets $796,940 Total equities $796,940 *July sales, 20% x 90% x $400,000 $ 72,000 August sales, 100% x 90% x $400,000 360,000 Accounts receivable (to Exhibit III) $432,000 ** $318,000 - $212,000 - $61,000 = $45,000 *** Interest expense of $6,180 less the $3,530 + $1,530 = $5,060 paid June July August Total Schedule a: Sales Budget Credit sales $630,000 $360,000 $360,000 $1,350,000 Cash sales 70,000 40,000 40,000 150,000 Total sales (to Exhibit I) $700,000 $400,000 $400,000 $1,500,000 Schedule b: Cash Collections June July August Cash sales $ 70,000 $ 40,000 $ 40,000 On accounts receivable from: April sales 54,000 - - May sales 252,000 63,000 - June sales - 504,000 126,000 July sales - - 288,000 Total collections (to Exhibit II) $376,000 $607,000 $454,000 Schedule c: Purchases Budget May June July August Desired purchases: 60% x next month's sales $420,000 $240,000 $240,000 $180,000 Schedule d: Disbursements for Purchases Last month's purchases (to Exhibit II) $420,000 $240,000 $240,000 Accounts payable, August 31, 2001 (to Exhibit III) $180,000 Cost of goods sold (to Exhibit I) $420,000 $240,000 $240,000 Schedule e: Operating Expense Budget and Schedule f: Payments for Operating Expenses Salaries, wages, commissions, other @24% of sales $168,000 $ 96,000 $ 96,000 2. This is an example of the classical short-term, self-liquidating loan. The need for such a loan often arises because of the seasonal nature of many businesses. In times of peak sales, the payroll and suppliers must be paid in cash that is not then available. The basic source of cash is proceeds from sales to customers. However, credit is extended to customers so that there is a lag between the sale and the collection of the cash. When the cash is collected, it in turn may be used to repay the loan. The amount of the loan and the timing of the repayment are heavily dependent on the credit terms that pertain to both the purchasing and selling functions of the business. 7-B1 (60-120 min.) $ refers to New Zealand dollars. 1. See Exhibits I, II, and III and supporting schedules a, b, c, d. 2. The cash budget and balance sheet clearly show the benefits of moving to just-in-time purchasing (though the transition would rarely be accomplished as easily as this example suggests). However, the company would be no better off if it left so much of its capital tied up in cash -- it has merely substituted one asset for another. At a minimum, the excess cash should be in an interest bearing account -- the interest earned or forgone is one of the costs of inventory. January February March Schedule a: Sales Budget Total sales (100% on credit) $62,000 $75,000 $38,000 Schedule b: Cash Collections 60% of current month's sales $37,200 $45,000 $22,800 30% of previous month's sales 7,500 18,600 22,500 10% of second previous month's sales 2,500 2,500 6,200 Total collections $47,200 $66,100 $51,500 December January February March Schedule c: Purchases Budget Desired ending inventory $39,050 $ 6,000 $ 6,000 $ 6,000 Cost of goods sold 12,500 31,000 37,500 19,000 Total needed $51,550 $37,000 $43,500 $25,000 Beginning inventory 16,000 39,050 8,050 6,000 Purchases $35,550 $ - $35,450 $19,000 Schedule d: Disbursements for Purchases 100% of previous month's purchases $35,550 $ - $35,450 March 31 accounts payable $19,000 Exhibit I AUCKLAND TENT Budgeted Statement of Cash Receipts and Disbursements For the Three Months Ending March 31, 20X1 January February March Cash balance, beginning $ 5,000 $ 5,100$37,692 Minimum cash balance desired 5,000 5,000 5,000 (a) Available cash balance $ 0 $ 100 $32,692 Cash receipts & disbursements: Collections from customers (schedule b) $47,200 $66,100 $51,500 Payments for merchandise (Schedule c) (35,550) - (35,450) Rent (8,050) (250) (250) Wages and salaries (15,000) (15,000) (15,000) Miscellaneous expenses (2,500) (2,500) (2,500) Dividends (1,500) - Purchase of fixtures - - (4,000) (b) Net cash receipts & disbursements $(15,400) $48,350 $ (5,700) Excess (deficiency) of cash before financing (a + b) (15,400 ) 48,450 26,992 Financing: Borrowing, at beginning of period $15,500 $ - $ - Repayment, at end of period - (15,500) Interest, 10% per annum - (258) (c) Total effects of financing $15,500 $(15,758) $ - (d) Cash balance, end (beg. bal. + b + c) $ 5,100 $ 37,692 $31,992 Exhibit II AUCKLAND TENT Budgeted Income Statement For the Three Months Ending March 31, 20X1 Sales (Schedule a) $175,000 Cost of goods sold (Schedule c) 87,500 Gross margin $ 87,500 Operating expenses: Rent* $17,250 Wages and salaries 45,000 Depreciation 1,200 Insurance 375 Miscellaneous 7,500 71,325 Net income from operations $ 16,175 Interest expense 258 Net income $ 15,917 *[(January-March sales less $10,000) x .10] + (3 x $250) Exhibit III AUCKLAND TENT Budgeted Balance Sheet March 31, 20X1 Assets Current assets: Cash (Exhibit I) $31,992 Accounts receivable* 22,700 Merchandise inventory (Schedule c) 6,000 Unexpired insurance 1,125 $61,817 Fixed assets, net: $12,500 + $4,000 - $1,200 15,300 Total assets $77,117 Liabilities and Stockholders' Equity Liabilities: Accounts payable (Schedule d) $19,000 Rent payable 16,500 Dividends payable 1,500 $37,000 Stockholders' equity** 40,117 Total liabilities and stockholders' equity. $77,117 *February sales (.10 x $75,000) plus March sales (.40 x $38,000) = $22,700 **Balance, December 31, 20X0 $25,700 (=$70,550 - $44,850) Add: Net income 15,917 Total $41,617 Less: Dividends declared 1,500 Balance, March 31, 20X1 $40,117