This Website Has Been Moved to a New Link


Loading

ACC202 Week 3 E14-2 E14-7 E14-13 E14-15 P14-16 P14-18 P14-20

Price: $9.99


E14-2 Welch Company, which expects to start operations on January 1, 2011, will sell digital cameras in shopping malls. Welch has budgeted sales as indicated in the following table. The company expects a 10 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.

Sales January February March 
Cash sales $40,000
Sales on account 100,000
Total budgeted sales $140,000
Required

a. Complete the sales budget by filling in the missing amounts.
b. Determine the amount of sales revenue Welch will report on its first quarter pro formal income statement.

E14-7 Naftel Company sells lamps and other lighting fixtures. The purchasing department manager
prepared the following inventory purchases budget. Naftel’s policy is to maintain an ending
inventory balance equal to 10 percent of the following month’s cost of goods sold. April’s
budgeted cost of goods sold is $75,000.

JanuaryFebruaryMarch
Budgeted cost of goods sold $50,000$54,000$60,000
Plus: Desired ending inventory 5,400
Inventory needed $55,400
Less: Beginning inventory 5,000
Required purchases (on account) $50,400

Required
a. Complete the inventory purchases budget by filling in the missing amounts.
b. Determine the amount of cost of goods sold the company will report on its fi rst quarter pro
forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance
sheet at the end of the first quarter.

E14-13 The accountant for Teresa's Dress Shop prepared the following cash budget. Teresa desires to maintain a cash cushion of $14,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 2% per month.


Required
a. Complete the cash budget by filling in the missing amounts. Round all computations to the
nearest whole dollar.
b. Determine the amount of net cash flows from operating activities Teresa’s will report on the
third quarter pro forma statement of cash flows.
c. Determine the amount of net cash flows from financing activities Teresa’s will report on the
third quarter pro forma statement of cash flows.

E14-15 Norman Jelen, the controller of Wing Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow.


Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative
expenses are about 10 percent of sales revenue.
Sam Wing, the chief executive officer, told Mr. Jelen that he expected sales next year to be
10 percent for each respective quarter above last year’s level. However, Glenda Sullivan, the vice
president of sales, told Mr. Jelen that she believed sales growth would be only 5 percent.

Required
a. Prepare a pro forma income statement including quarterly budgets for the coming year using
Mr. Wing’s estimate.
b. Prepare a pro forma income statement including quarterly budgets for the coming year using
Ms. Sullivan’s estimate.
c. Explain why two executive officers in the same company could have different estimates of
future growth.

P14-16 McCarty Pointers Inc. expects to begin operations on January 1, 2012; it will operate as a specialty sales company that sells laser pointers over the Internet. McCarty expects sales in January 2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent
in the month following the sale, and 10 percent in the second month following the sale.

Required
a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly pro
forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2012.
d. Determine the amount of accounts receivable as of March 31, 2012.

P14-18 Top executive officers of Zottoli Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income statement


Sales revenue   2,000,000
Cost of goods sold   1,400,000
Gross profit   600,000
Selling & admin. expenses   260,000
Net income   340,000

Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative expenses
are usually 10 percent of sales plus a fixed cost of $60,000. The president has announced
that the company’s goal is to increase net income by 15 percent.

Required
The following items are independent of each other.
a. What percentage increase in sales would enable the company to reach its goal? Support your
answer with a pro forma income statement.
b. The market may become stagnant next year, and the company does not expect an increase in
sales revenue. The production manager believes that an improved production procedure can
cut cost of goods sold by 2 percent. What else can the company do to reach its goal? Prepare
a pro forma income statement illustrating your proposal.
c. The company decides to escalate its advertising campaign to boost consumer recognition,
which will increase selling and administrative expenses to $340,000. With the increased advertising,
the company expects sales revenue to increase by 15 percent. Assume that cost of
goods sold remains a constant proportion of sales. Can the company reach its goal?

P14-20 Kinnion Medical Clinic has budgeted the following cash flows.
JanuaryFebruaryMarch
Cash receipts  100,000 106,000 126,000
Cash payments 
   For inventory purchases  90,000 72,000 85,000
   For S&A expenses  31,000 32,000 27,000

Kinnion Medical had a cash balance of $8,000 on January 1. The company desires to maintain
a cash cushion of $5,000. Funds are assumed to be borrowed, in increments of $1,000, and
repaid on the last day of each month; the interest rate is 1 percent per month. Kinnion pays its
vendor on the last day of the month also. The company had a monthly $40,000 beginning balance
in its line of credit liability account from this year’s quarterly results.

Required
Prepare a cash budget. (Round all computations to the nearest whole dollar.)

No comments:

Post a Comment