Creating the Merchandise Purchases Budget, the Cash Budget, the Budgeted Income Statement, and the Budgeted Balance Sheet for a Master Budget:
A relatively new company, Wine To End Whining, Inc., has determined they need to engage in a budgeting process as part of their new strategic plan. The Company has asked you to provide the following items for the months of January, February, and March of 2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income Statement; and D) a Budgeted Balance Sheet. They have provided you with the planning document below and also, with their December 31, 2016 Balance Sheet. Please complete the four items requested on Worksheet Tabs A, B, C, and D of this Workbook. Check Figures are provided for you on each Worksheet.
WINE TO END WHINING, INC. PLANNING DATA FOR 2017
| |
|
| Expected Sales in Dollars |
|
| January 2017 |
220000 |
| February 2017 |
193000 |
| March 2017 |
178000 |
| April 2017 |
201000 |
| |
|
| All Sales are on Credit |
|
| Collections of Accounts Receivable |
|
| Month of Service |
0.44 |
| Month following Service |
0.56 |
| Actual December 2016 Sales |
200000 |
| |
|
| Cost of Goods Sold is 65% of selling price. |
0.65 |
| |
|
| Planned ending inventory as a percentage of next month's requirement. |
0.6 |
| |
|
| Purchases are are all on credit. |
|
| Purchases paid in current month |
0.3 |
| Purchases paid in next month |
0.7 |
| Actual Purchases made in December 2016 |
137800 |
| |
|
| Sales commission as a percent of sales |
0.03 |
| Sales commission are paid the month after they are incurred. |
|
| |
|
| Advertising expenses have a fixed and variable portion: |
|
| Fixed portion |
6400 |
| The fixed portion of the advertising is paid one month in advance. |
|
| Variable portion as a percentage of sales |
0.02 |
| The variable portion is paid in the month incurred |
|
| |
|
| Insurance policy: |
|
| Months of insurance coverage paid for |
12 |
| The policy period is from February 1 to January 31 each year |
|
| The premium to be paid on February 1, 2017 is 24,000 |
24000 |
| The premium will be charged to prepaid insurance |
|
| |
|
| Selling and Administrative expenses have a fixed and variable portion: |
|
| Fixed portion |
29000 |
| Variable portion as a percentage of sales |
0.03 |
| S&A expenses are paid in the month incurred |
|
| |
|
| Depreciation expense per month |
4000 |
| |
|
| The interest rate on the long term debt is 4% APR |
0.04 |
| Interest is incurred on the principal balance outstanding each month. |
|
| Interest is paid on a quarterly basis. Interest for December to February will be paid March 1. |
|
| No principal payments are scheduled to be made on the long-term debt until September of 2017 |
|
| |
|
| Income Tax rate |
0.3 |
| Accrued taxes are paid on the 15th of January, April, July and October |
|
| |
|
| The Company's Board of Directors plans to declare a dividend on February 20 |
17000 |
| It will be paid on March 15. |
|
Use the information provided on the December 31, 2016 Balance Sheet shown below to help you create the budgeting documents requested.
WINE TO END WHINING, INC. BALANCE SHEET December 31, 2016
| ASSETS |
|
| Current Assets |
|
| Cash |
103200 |
| Accounts Receivable |
112000 |
| Inventory |
85800 |
| Prepaid Advertising |
6400 |
| Prepaid Insurance |
2000 |
| Total Current Assets |
309400 |
| |
|
| Property Plant and Equipment |
|
| Office Equipment |
240000 |
| Less Accumulated Depreciation |
-48000 |
| Total Property Plant and Equipment |
192000 |
| |
|
| Total Assets |
501400 |
| |
|
| |
|
| LIABILITIES AND SHAREHOLDERS EQUITY |
|
| LIABILITIES |
|
| Current Liabilities |
|
| Accounts Payable - Purchases |
96460 |
| Sales Commission Payable |
6000 |
| Interest Payable |
600 |
| Dividends Payable |
0 |
| Income Taxes Payable |
8970 |
| Total Current Liabilities |
112030 |
| |
|
| Long Term Debt |
180000 |
| |
|
| Total Liabilities |
292030 |
| |
|
| SHAREHOLDERS' EQUITY |
|
| Common Stock |
124000 |
| Retained Earnings |
85370 |
| |
|
| Total Shareholders' Equity |
209370 |
| |
|
| Total Liabilities and Shareholders Equity |
501400 |
1. Based on the information available to you, complete the Purchases Budget worksheet. Check figures are: January Budgeted Purchase for Next Month Sales = $132,470; March Inventory Needed to be Available during Current Month = $194,090.
2. Based on the information available to you, complete the Cash Budget worksheet. Check figures are: January Cash Receipts = $208,800; February Cash Disbursements = $204,259; March Ending Cash Balance = $114,679.
3. Based on the information available to you, complete the Budgeted Income Statement worksheet. Check figures are: January Budgeted Gross Margin = $77,000; February Budgeted Operating Income = $10,710; March Budgeted Net Income = $4,242.
4. Based on the information available to you, complete the Budgeted Balance Sheet worksheet. Check figures are: January Total Assets = $507,299; February Total Liabilities = $296,563; March Total Current Assets = $319,149.