Chapter 7 Practice

1. Randall Company is a merchandising company that sells a single product. The company's
inventories, production, and sales in units for the next three months have been forecasted as
follows:

Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the
balance are paid for in the following month. Accounts receivable at September 30 totaled
$450,000.
Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the
purchase and the remainder are paid for in the month following purchase. Selling and
administrative expenses are expected to total $120,000 each month. One half of these expenses
will be paid in the month in which they are incurred and the balance will be paid in the following
month. There is no depreciation. Accounts payable at September 30 totaled $290,000.
Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is
scheduled for November, and a dividend of $200,000 is to be paid in December.

Required:

a. Prepare a schedule of expected cash collections for each of the months of October, November,
and December.
b. Prepare a schedule showing expected cash disbursements for merchandise purchases and
selling and administrative expenses for each of the months October, November, and December.
c. Prepare a cash budget for each of the months October, November, and December. There is no
minimum required ending cash balance. 
   

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #96
Difficulty: 2 Medium
Learning Objective: 07-02 Prepare a sales budget; including a schedule of expected cash collections.
Learning Objective: 07-03 Prepare a production budget.
Learning Objective: 07-07 Prepare a selling and administrative expense budget.
Learning Objective: 07-08 Prepare a cash budget.
Topic: Preparing the Master Budget
2. Capp Corporation is a wholesaler of industrial goods. Data regarding the store's operations
follow:

o Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for
January.
o Collections are expected to be 60% in the month of sale, 39% in the month following the sale,
and 1% uncollectible.
o The cost of goods sold is 75% of sales.
o The company desires an ending merchandise inventory equal to 40% of the following month's
cost of goods sold. Payment for merchandise is made in the month following the purchase.
o The November beginning balance in the accounts receivable account is $70,000.
o The November beginning balance in the accounts payable account is $257,000.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #98
Difficulty: 2 Medium
Learning Objective: 07-02 Prepare a sales budget; including a schedule of expected cash collections.
Learning Objective: 07-03 Prepare a production budget.
Topic: Preparing the Master Budget
3. Edwards Company has projected sales and production in units for the second quarter of the
year as follows:

Required:

a. Cash production costs are budgeted at $6 per unit produced. Of these production costs, 40%
are paid in the month in which they are incurred and the balance in the following month. Selling
and administrative expenses (all paid in cash) amount to $60,000 per month. The accounts
payable balance on March 31 totals $96,000, all of which will be paid in April. Prepare a
schedule for each month showing budgeted cash disbursements for Edwards Company.
b. Assume that all units will be sold on account for $15 each. Cash collections from sales are
budgeted at 60% in the month of sale, 30% in the month following the month of sale and the
remaining 10% in the second month following the month of sale. Accounts receivable on March
31 totaled $255,000 $(45,000 from February's sales and the remainder from March.) Prepare a
schedule for each month showing budgeted cash receipts for Edwards Company. 

Learning Objective: 07-02 Prepare a sales budget; including a schedule of expected cash collections.
Learning Objective: 07-08 Prepare a cash budget.
4. Lahay Inc. bases its selling and administrative expense budget on the number of units sold.
The variable selling and administrative expense is $4.30 per unit. The budgeted fixed selling and
administrative expense is $30,240 per month, which includes depreciation of $3,510. The
remainder of the fixed selling and administrative expense represents current cash flows. The
sales budget shows 2,700 units are planned to be sold in April.

Required:

Prepare the selling and administrative expense budget for April. 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #104
Difficulty: 1 Easy
Learning Objective: 07-07 Prepare a selling and administrative expense budget.
Topic: Preparing the Master Budget
 
5. The selling and administrative expense budget of Fenley Corporation is based on the number
of units sold, which are budgeted to be 2,500 units in January. The variable selling and
administrative expense is $4.40 per unit. The budgeted fixed selling and administrative expense
is $35,750 per month, which includes depreciation of $4,000. The remainder of the fixed selling
and administrative expense represents current cash flows.

Required:

Prepare the selling and administrative expense budget for January. 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #105
Difficulty: 1 Easy
Learning Objective: 07-07 Prepare a selling and administrative expense budget.
Topic: Preparing the Master Budget
 
6. Enciso Corporation is preparing its cash budget for November. The budgeted beginning cash
balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash disbursements total
$141,000. The desired ending cash balance is $50,000. The company can borrow up to $100,000
at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for November in good form. 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #106
Difficulty: 1 Easy
Learning Objective: 07-08 Prepare a cash budget.
Topic: Preparing the Master Budget
 
7. Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash balance is
$19,000. Budgeted cash receipts total $105,000 and budgeted cash disbursements total $98,000.
The desired ending cash balance is $50,000. The company can borrow up to $120,000 at any
time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for April in good form. Make sure to indicate what
borrowing, if any, would be needed to attain the desired ending cash balance. 

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Brewer - Chapter 07 #107
Difficulty: 1 Easy
Learning Objective: 07-08 Prepare a cash budget.
Topic: Preparing the Master Budget