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Additional Problems On Budgeting

The document provides information about four accounting problems. Problem 1 provides income statement data for a company in March and asks to prepare budgeted income statements for April, May and June if a new pricing strategy is implemented. Problem 2 provides accounts receivable data and sales forecasts and asks to prepare a cash receipts budget for July and August. Problem 3 provides quarterly cash flow data and asks to prepare a cash budget for the fiscal year. Problem 4 provides additional budget information for Rain Company and asks to prepare a May cash budget, income statement, and balance sheet.

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Rommel Cruz
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139 views

Additional Problems On Budgeting

The document provides information about four accounting problems. Problem 1 provides income statement data for a company in March and asks to prepare budgeted income statements for April, May and June if a new pricing strategy is implemented. Problem 2 provides accounts receivable data and sales forecasts and asks to prepare a cash receipts budget for July and August. Problem 3 provides quarterly cash flow data and asks to prepare a cash budget for the fiscal year. Problem 4 provides additional budget information for Rain Company and asks to prepare a May cash budget, income statement, and balance sheet.

Uploaded by

Rommel Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem 1: Accounting Lecture Series Inc.

, a one-product mail-order firm, buys its product for


P75 per unit and sells it for P140 per unit. The sales staff received a 10% commission on the sale
of each unit. Its March income statement follows.

Accounting Lecture Series Inc.


Income Statement
For Month Ended March 31, 2016

Sales P1,400,000
Cost of goods sold 750,000
Gross Profit P 650,000
Expenses
Sales commissions (10%) 140,000
Advertising 215,000
Store rent 26,000
Administrative salaries 42,000
Deprecation 52,000
Other expenses 13,000
Total expenses P 488,000
Net income P 162,000

Management expects March’s results to be repeated in April, May, and June of 2016 without any
changes in strategy. Management, however, has an alternative plan. It believes that unit sales
will increase at a rate of 10% each month for the next three months (beginning with April) if the
item’s selling price is reduced to P130 per unit and advertising expenses increased by 20% and
remain at that level for all three months. The cost of its product will remain at P75 per unit, the
sales staff will continue to earn a 10% commission, and the remaining expenses will stay the
same.

Required: Prepare a budgeted income statements for each of the months of April, May,
and June that show the expected results from implementing the proposed changes. Use
a three-column format, with one column for each month.
Problem 2: Mr. Accounting, Inc., found that about 20 percent of its sales during the month were
for cash.
Lawrence has the following accounts receivable payment experience:

Percent paid in the month of sale 40%


Percent paid in the month after the sale 50%
Percent paid in the second month after the sale 8%

Mr. Accounting’s anticipated sales for the next few months are
April P240,000
May P288,000
June P276,000
July P295,000
August P300,000

Required: Prepare a cash receipts budget for July and August.

Problem 3: A company is preparing its budget for the upcoming fiscal year. Management has
prepared the following summary of its budgeted cash flows:
1Q 2Q 3Q 4Q
Total cash receipts P180,000 P330,000 P210,000 P230,000
Total cash disbursements P260,000 P230,000 P220,000 P240,000

The company’s beginning cash balance for the upcoming fiscal year will be P20,000. The company
requires a minimum cash balance of P10,000 and may borrow any amount needed from a local
bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning
of any quarter and may repay its loans, or any part of it, at the end of any quarter. Interest
payments are due on any principal at the time it is repaid. For simplicity, assume the interest is
not compounded.

Required: Prepare the company’s cash budget for the upcoming fiscal year.
Problem 4: Rain Company is a wholesale distributor of electronic mobile legends equipment. The
company’s balance sheet as of April 30 is given below:

Assets
Cash P 9,000
Accounts receivable, customers 54,000
Inventory 30,000
Buildings, equipment, net of depreciation 207,000
Total assets P300,000

Liabilities and Stockholder’s Equity

Accounts payable, suppliers P63,000


Note payable 14,500
Capital stock, no par 180,000
Retained Earnings 42,500
Total Liabilities and stockholders’ equity P300,000

The company is in the process of preparing budget data for May. A number of budget items have
already been prepared, as stated below:
a. Sales are budgeted at P200,000 for May. Of these sales, P60,000 will be for cash; the
remainder will be credit sales. One-half of a month’s credit sales are collected in the month
the sales are made, and the remainder is collected in the following month. All the April 30
receivables will be collected in May.
b. Purchases of inventory are expected to total P120,000 during May. These purchases will all
be on account. Forty percent of all purchases are paid for in the month of purchase, the
remainder is paid in the following month. All the April 30 accounts payable to suppliers will
be paid during May.
c. The May 31 inventory balance is budgeted at P40,000.
d. Operating expenses for May are budgeted at P72,000, exclusive of depreciation. These
expenses will be paid in cash. Depreciation is budgeted at P2,000 for the month.
e. The note payable on the April 30 balance sheet will be paid in May, with P100 in interest.
(All the interest relates to May)
f. New refrigerating equipment costing P6,500 will be purchased for cash in June.
g. During May, the company will borrow P20,000 from its bank by giving a new note payable
to the bank for that amount. The new note will be due in one year.

Required:
a. Prepare a cash budget for May. Support your budget with schedules showing
budgeted cash receipts from sales and budgeted cash payments for inventory
purchases.
b. Prepare a budgeted income statement for May. Use the traditional income
statement format.
c. Prepare a budgeted balance sheet as of May 31.

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