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Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter. a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances: Cash $ 9,000 Accounts receivable 48,000 Inventory 12,600 Buildings and equipment (net) 214,100 Accounts payable $ 18,300 Capital stock 190,000 Retained earnings 75,400 ________________________________________ ________________________________________ $ 283,700 $ 283,700 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ b. Actual sales for March and budgeted sales for April–July are as follows: March (actual) $60,000 April $70,000 May $85,000 June $90,000 July $50,000 ________________________________________ c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales. d. The company’s gross margin percentage is 40% of sales. (In other words, cost of goods sold is 60% of sales.) e. Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $7,500 per month; shipping, 6% of sales; advertising, $6,000 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $6,000 for the quarter. f. Each month’s ending inventory should equal 30% of the following month’s cost of goods sold. g. Half of a month’s inventory purchases are paid for in the month of purchase and half in the following month. h. Equipment purchases during the quarter will be as follows: April, $11,500; and May, $3,000. i. Dividends totaling $3,500 will be declared and paid in June. j. Management wants to maintain a minimum cash balance of $8,000. 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 $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: Using the data above, complete the following statements and schedules for the second quarter: 1. Schedule of expected cash collections: (Omit the “$” sign in your response.) Schedule of expected cash collections April May June Total Cash sales $ 14,000 $ $ $ Credit sales 48,000 ________________________________________ Total collections $ 62,000 $ $ $ ________________________________________________________________________________ ________________________________________ 2a. Merchandise purchases budget. (Input all amounts as positive values. Omit the “$” sign in your response.) Merchandise purchases budget April May June Total Budgeted cost of goods sold $ 42,000 * $ 51,000 $ $ : desired ending inventory 15,300 † ________________________________________ ________________________________________ Total needs 57,300 : beginning inventory 12,600 ________________________________________ ________________________________________ Required purchases $ 44,700 $ $ $ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ *$70,000 sales × 60% = $42,000. †$51,000 × 30% = $15,300. 2b. Schedule of expected cash disbursements for merchandise purchases: (Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.) Schedule of cash disbursements for purchases April May June Total For March purchases $ 18,300 $ $ $ 18,300 For April purchases 22,350 22,350 44,700 For May purchases For June purchases ________________________________________ Total cash disbursements for purchases $ 40,650 $ $ $ ________________________________________________________________________________ ________________________________________ 3. Schedule of expected cash disbursements for selling and administrative expenses: (Omit the “$” sign in your response.) Schedule of cash disbursements for selling and administrative expenses April May June Total Salaries and wages $ 7,500 $ $ $ Shipping 4,200 Advertising 6,000 Other expenses 2,800 ________________________________________ Total cash disbursements for selling and administrative expenses $20,500 $ $ $ ________________________________________________________________________________ ________________________________________ 4. Cash budget. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.) Nordic Company Cash budget April May June Total Cash balance, beginning $ 9,000 $ $ $ Add cash collections 62,000 ________________________________________ Total cash available 71,000 ________________________________________ Less cash disbursements: For inventory purchases 40,650 For selling and administrative expenses 20,500 For equipment purchases 11,500 For dividends ________________________________________ Total cash disbursements 72,650 ________________________________________ Excess (deficiency) of cash (1,650) ________________________________________ Financing: Borrowings Repayments Interest ________________________________________ Total financing ________________________________________ Cash balance, ending $ $ $ $ ________________________________________________________________________________ ________________________________________ 5. Prepare an absorption costing income statement for the quarter ending June 30. (Input all amounts as positive values. Omit the “$” sign in your response.) Nordic Company Income Statement For the Quarter Ended June 30 $ Cost of goods sold: $ ________________________________________ ________________________________________ Selling and administrative expenses: ________________________________________ ________________________________________ $ ________________________________________________________________________________ ________________________________________ 6. Prepare a balance sheet as of June 30. (Be sure to list the assets and liabilities in order of their liquidity. Omit the “$” sign in your response.) Nordic Company Balance Sheet June 30 Assets Current assets: $ ________________________________________ Total current assets ________________________________________ Total assets $ ________________________________________________________________________________ Liabilities and Stockholders’ Equity Current liabilities: $ Stockholders’ equity: $ ________________________________________ ________________________________________ Total liabilities and stockholders’ equity $ ________________________________________________________________________________ ________________________________________

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

 

a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances:

 

 

 

  Cash

$

9,000

 

  Accounts receivable

48,000

 

  Inventory

12,600

 

  Buildings and equipment (net)

214,100

 

  Accounts payable

$

18,300

  Capital stock

 

190,000

  Retained earnings

 

75,400

 


 

$

283,700

$

283,700

 





 

b. Actual sales for March and budgeted sales for April–July are as follows:

 

 

  March (actual)

 $60,000

  April

$70,000

  May

$85,000

  June

$90,000

  July

$50,000


 

c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales.
d. The company’s gross margin percentage is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
e. Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $7,500 per month; shipping, 6% of sales; advertising, $6,000 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $6,000 for the quarter.
f. Each month’s ending inventory should equal 30% of the following month’s cost of goods sold.
g. Half of a month’s inventory purchases are paid for in the month of purchase and half in the following month.
h. Equipment purchases during the quarter will be as follows: April, $11,500; and May, $3,000.
i. Dividends totaling $3,500 will be declared and paid in June.
j. Management wants to maintain a minimum cash balance of $8,000. 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 $20,000. 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.

 

Required:
Using the data above, complete the following statements and schedules for the second quarter:

1.

Schedule of expected cash collections: (Omit the “$” sign in your response.)

 

Schedule of expected cash collections

 

April

May

June

Total

  Cash sales

$ 14,000

  Credit sales

48,000

 

  Total collections

$ 62,000

 



 

2a. Merchandise purchases budget. (Input all amounts as positive values. Omit the “$” sign in your response.)

 

Merchandise purchases budget

 

April

 

May

June

Total

  Budgeted cost of goods sold

$ 42,000

*

$ 51,000

  : desired ending inventory

15,300

 


  Total needs

57,300

 

  : beginning inventory

12,600

 

 


  Required purchases

$ 44,700

 

 





 

*$70,000 sales × 60% = $42,000.
†$51,000 × 30% = $15,300.

 

2b. Schedule of expected cash disbursements for merchandise purchases: (Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

Schedule of cash disbursements for purchases

 

April

May

June

Total

  For March purchases

$ 18,300

$ 18,300

  For April purchases

22,350

22,350

44,700

  For May purchases

  For June purchases

 

  Total cash disbursements
for purchases

$ 40,650

 



 

3.

Schedule of expected cash disbursements for selling and administrative expenses: (Omit the “$” sign in your response.)

 

Schedule of cash disbursements for selling and administrative expenses

 

April

May

June

Total

  Salaries and wages

$ 7,500

  Shipping

4,200

  Advertising

6,000

  Other expenses

2,800

 

  Total cash disbursements for selling
and administrative expenses

$20,500

 



 

4.

Cash budget. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

Nordic Company

Cash budget

 

April

May

June

Total

  Cash balance, beginning

$ 9,000

  Add cash collections

62,000

 

  Total cash available

71,000

 

  Less cash disbursements:

     For inventory purchases

40,650

     For selling and administrative expenses

20,500

     For equipment purchases

11,500

     For dividends

 

  Total cash disbursements

72,650

 

  Excess (deficiency) of cash

(1,650)

 

  Financing:

     Borrowings

     Repayments

     Interest

 

  Total financing

 

  Cash balance, ending

 



 

5.

Prepare an absorption costing income statement for the quarter ending June 30. (Input all amounts as positive values. Omit the “$” sign in your response.)

 

Nordic Company
Income Statement
For the Quarter Ended June 30

  

  Cost of goods sold:

       

       

 

       

       

 

  

  Selling and administrative expenses:

       

       

       

       

       

 

  

  

 


  

 




 

6.

Prepare a balance sheet as of June 30. (Be sure to list the assets and liabilities in order of their liquidity. Omit the “$” sign in your response.)

 

Nordic Company
Balance Sheet
June 30

Assets

  Current assets:

       

       

       

 


  Total current assets

  

 


 Total assets

 



Liabilities and Stockholders’ Equity

  Current liabilities:

  

  Stockholders’ equity:

       

       

 


  Total liabilities and stockholders’ equity

 




 

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