Timbers Department Store prepares its budgets quarterly. The following information is available for use in planning the second quarter budgets for 2022.
Assets
Liabilities and Stockholders' Equity
Cash
$4,000
Accounts payable
$31,000
Accounts receivable
31,000
Dividends payable
15,000
Inventory
36,000
Prepaid insurance
3,000
Stockholders' equity
53,360
Fixtures
25,360
Total assets
$99,360
Total liabilities and equity
$99,360
TIMBERS DEPARTMENT STORE
Balance Sheet
March 31, 2022
Actual and forecasted sales for selected months in 2022 are as follows:
Sales Revenue by Month
Month
Sales Revenue
January
$70,000
Fe
uary
60,000
March
50,000
April
60,000
May
70,000
June
90,000
July
100,000
August
90,000
Monthly operating expenses are as follows:
Category
Amount
Wages and salaries
$27,000
Depreciation
300
Utilities
1,500
Rent
3,000
Cash dividends of $15,000 are declared during the third month of each quarter and are paid during the first month of the following quarter.
Operating expenses, except insurance and depreciation, are paid as incu
ed. The prepaid insurance is for six more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month’s cost of goods sold. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter.
Cash Management Policy: Money can be bo
owed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. For budgeting purposes the company uses simple interest for all interest calculations. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All bo
owing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is bo
owed. Any repayment of past bo
owings can only occur if the monthly ending cash balance is greater than $10,000 (after partial or full repayment of past bo
owing).
Question: Give a summary of the just prepared budget for Timbers Department Store. Make sure you address the adequacy of the Cash Management Policy, and if necessary, suggest reasonable changes to this policy.
Figures
Assets
Cash $4,000
Accounts receivable 31,000
Inventory 36,000
Prepaid insurance 3,000
Fixtures 25,360
Total assets $99,360
Liabilities and Stockholders' Equity
Accounts payable $31,000
Dividends payable 15,000
Stockholders' equity 53,360
Total liabilities and equity $99,360
Category Amount
Wages and salaries $27,000
Depreciation 300
Utilities 1,500
Rent 3,000
Month Sales Revenue
January $70,000
Fe
uary 60,000
March 50,000
April 60,000
May 70,000
June 90,000
July 100,000
August 90,000
Budget
Appendix B Timbers Department Store
Cash Reciepts Schedule
for second quarter of 2022
Sale Revenue Cash collection pattern
January Febuary March April May June Total
Jan $70,000 $35,000 $28,000 $7,000
Feb $60,000 $30,000 $24,000 $6,000
Mar $50,000 $25,000 $20,000 $5,000
Apr $60,000 $30,000 $24,000 $6,000
May $70,000 $35,000 $28,000
June $90,000 $45,000
Total cash receipts in month $35,000 $58,000 $56,000 $56,000 $64,000 $79,000 $199,000
Appendix A Timbers Department Store
Purchase Budget
for second quarter of 2022
April May June Total July
Budgeted sales $60,000 $70,000 $90,000 $220,000 $100,000
Cu
ent COGS $30,000 $35,000 $45,000 $110,000 $50,000
Desired ending inventory $42,000 $54,000 $60,000 $60,000
Total needed $72,000 $89,000 $105,000 $170,000
Less beginning inventories -$36,000 -$42,000 -$54,000 -$36,000
Required purchase $36,000 $47,000 $51,000 $134,000
Appendix C Timbers Department Store
Cash Disbursements Schedule
for second quarter of 2022
April May June Total
Inventory purchase $31,000 $36,000 $47,000
Wages and salaries $27,000 $27,000 $27,000
Utilities $1,500 $1,500 $1,500
Rent $3,000 $3,000 $3,000
Cash dividend $15,000
Total disbursement $77,500 $67,500 $78,500 $223,500
Appendix D Timbers Department Store
Overall Cash Budget
for second quarter of 2022
April May June Total
Cash balance, beginning $4,000 $4,500 $4,000 $4,000
Collection on Sale $56,000 $64,000 $79,000 $199,000
Cash available for operations $60,000 $68,500 $83,000 $203,000
Disbursements for operations -$77,500 -$67,500 -$78,500 -$223,500
Ending cash before
bo
owings or repayments -$17,500 $1,000 $4,500 -$20,500
New loans $22,000 $3,000 $25,000
Repayments $ -
Interest accured (1%) $220 $250 $250 $720
Interest paid $ -
Net cash from financing $22,000 $3,000 $ - $25,000
Cash balance, ending $4,500 $4,000 $4,500 $4,500
Appendix E Timbers Department Store
Budgeted Income Statement
for second quarter ending June 30, 2022
Sales $220,000
Cost of goods sold -$110,000
Gross profit $110,000
Other expenses
Wages and salaries $81,000
Utilities $4,500
Rent $9,000
Depreciation $900
Insurance $1,500 -$96,900
Income from operations $13,100
Interest expense -$720
Net income from operations $12,380
Appendix F Timbers Department Store
Budgeted Balance Sheet
June 30, 2022
Assets Liabilities
Cu
ent assets Cu
ent liabilities
Cash $4,500 Accounts payable $51,000
Accounts receivable, net $52,000 Loan payable $25,000
Inventory $60,000 Interest payable $720
Prepaid insurance $1,500 $118,000 Dividend payable $15,000 $91,720
Fixed assets
Fixtures $25,360 Stockholders' Equities
Less accumulated depreciation -$900 $24,460 Retained earnings $50,740
Total assets $142,460 Total liabilities and stockholders' equities $142,460