Problem 9-14 (45 minutes)

1. Schedule of expected cash collections:

Month
April May June Quarter
From accounts
receivable ..................... $141,000 $ 7,200 $148,200
From April sales:
20% _ 200,000.............. 40,000 40,000
75% _ 200,000.............. 150,000 150,000
4% _ 200,000 ............... $ 8,000 8,000
From May sales:
20% _ 300,000.............. 60,000 60,000
75% _ 300,000.............. 225,000 225,000
From June sales:
20% _ 250,000.............. 50,000 50,000
Total cash collections ........ $181,000 $217,200 $283,000 $681,200
Problem 9-14 (continued)
2. Cash budget:
Month
April May June Quarter
Cash balance,
beginning.................... $ 26,000 $ 27,000 $ 20,200 $ 26,000
Add receipts:
Collections from
customers ................ 181,000 217,200 283,000 681,200
Total available ................ 207,000 244,200 303,200 707,200
Less disbursements:
Merchandise
purchases................. 108,000 120,000 180,000 408,000
Payroll ........................ 9,000 9,000 8,000 26,000
Lease payments........... 15,000 15,000 15,000 45,000
Advertising.................. 70,000 80,000 60,000 210,000
Equipment purchases ... 8,000 — — 8,000
Total disbursements........ 210,000 224,000 263,000 697,000
Excess (deficiency) of
receipts over
disbursements ............. (3,000) 20,200 40,200 10,200
Financing:
Borrowings.................. 30,000 — — 30,000
Repayments ................ — — (30,000) (30,000)
Interest ...................... — — (1,200) (1,200)
Total financing ............... 30,000 — (31,200) (1,200)
Cash balance, ending $ 27,000 $ 20,200 $ 9,000 $ 9,000

3. If the company needs a minimum cash balance of $20,000 to start each

month, the loan cannot be repaid in full by June 30. If the loan is repaid
in full, the cash balance will drop to only $9,000 on June 30, as shown
above. Some portion of the loan balance will have to be carried over to
July, at which time the cash inflow should be sufficient to complete
repayment.
Problem 9-16 (60 minutes)
1. The sales budget for the third quarter:
July Aug. Sept. Quarter
Budgeted sales (pairs) ...... 6,000 7,000 5,000 18,000
Selling price per pair ......... _ $50 _ $50 _ $50 _ $50
Total budgeted sales......... $300,000 $350,000 $250,000 $900,000

The schedule of expected cash collections from sales:

July Aug. Sept. Quarter
Accounts receivable,
beginning balance.......... $130,000 $130,000
July sales:
$300,000 _ 40%, 50% ... 120,000 $150,000 270,000
August sales:
$350,000 _ 40%, 50% ... 140,000 $175,000 315,000
September sales:
$250,000 _ 40%............ 100,000 100,000
Total cash collections ........ $250,000 $290,000 $275,000 $815,000

2. The production budget for July through October:

July Aug. Sept. Oct.
Budgeted sales (pairs) ....................... 6,000 7,000 5,000 4,000
Add desired ending inventory ............. 700 500 400 300
Total needs....................................... 6,700 7,500 5,400 4,300
Less beginning inventory.................... 600 700 500 400
Required production (pairs) ................ 6,100 6,800 4,900 3,900
Problem 9-16 (continued)
3. The materials purchases budget for the third quarter:
July Aug. Sept. Quarter
Required production—pairs
(above)............................. 6,100 6,800 4,900 17,800
Raw materials needs per
pair .................................. _ 2kgs. _ 2kgs. _ 2kgs. _ 2kgs.
Production needs (kgs.) ........ 12,200 13,600 9,800 35,600
Add desired ending
inventory .......................... 2,720 1,960 1,560 * 1,560
Total needs.......................... 14,920 15,560 11,360 37,160
Less beginning inventory....... 2,440 2,720 1,960 2,440
Raw materials to be
purchased ......................... 12,480 12,840 9,400 34,720
Cost of raw materials to be
purchased at $2.50 per
kg. ................................... $31,200 $32,100 $23,500 $86,800
*3,900 pairs (October) _ 2 kgs. per pair= 7,800 kgs.;
7,800 kgs. _ 20% = 1,560 kgs.

The schedule of expected cash disbursements:

July Aug. Sept. Quarter
Accounts payable, beginning
balance................................... $11,400 $11,400
July purchases:
$31,200 _ 60%, 40% ............... 18,720 $12,480 31,200
August purchases:
$32,100 _ 60%, 40% ............... 19,260 $12,840 32,100
September purchases:
$23,500 _ 60%........................ 14,100 14,100
Total cash disbursements ............ $30,120 $31,740 $26,940 $88,800
Problem 9-19 (120 minutes)
1. Schedule of expected cash collections:
April May June Total
Cash sales ............................... $14,000 $17,000 $18,000 $ 49,000
Credit sales.............................. 48,000 56,000 68,000 172,000
Total collections........................ $62,000 $73,000 $86,000 $221,000

2. a. Inventory purchases budget:

April May June Total
Budgeted cost of goods sold...... $42,000 $51,000 $54,000 $147,000
Add desired ending inventory* .. 15,300 16,200 9,000 9,000
Total needs.............................. 57,300 67,200 63,000 156,000
Less beginning inventory........... 12,600 15,300 16,200 12,600
Required purchases .................. $44,700 $51,900 $46,800 $143,400
*
At April 30: $51,000 _ 30% = $15,300.
At June 30: $50,000 July sales _ 60% _ 30% = $9,000.

b. 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 ................... 25,950 $25,950 51,900
For June purchases .................. 23,400 23,400
Total cash disbursements .......... $40,650 $48,300 $49,350 $138,300
Problem 9-19 (continued)
3. Schedule of cash disbursements for operating expenses:
April May June Total
Salaries and wages.......................
$ 7,500 $ 7,500 $ 7,500 $22,500
Shipping......................................
4,200 5,100 5,400 14,700
Advertising ..................................
6,000 6,000 6,000 18,000
Other expenses............................2,800 3,400 3,600 9,800
Total cash disbursements for
operating expenses.................... $20,500 $22,000 $22,500 $65,000

4. Cash budget:
April May June Total
Cash balance, beginning ............... $ 9,000 $ 8,350 $ 8,050 $ 9,000
Add cash collections ..................... 62,000 73,000 86,000 221,000
Total cash available.................... 71,000 81,350 94,050 230,000
Less disbursements:
For inventory purchases ............. 40,650 48,300 49,350 138,300
For operating expenses .............. 20,500 22,000 22,500 65,000
For equipment purchases ........... 11,500 3,000 0 14,500
For dividends ............................ 0 0 3,500 3,500
Total disbursements...................... 72,650 73,300 75,350 221,300
Excess (deficiency) of cash............ (1,650) 8,050 18,700 8,700
Financing:
Borrowings ............................... 10,000 0 0 10,000
Repayments .............................. 0 0 (10,000) (10,000)
Interest* .................................. 0 0 (300) (300)
Total financing ............................. 10,000 0 (10,300) (300)
Cash balance, ending.................... $ 8,350 $ 8,050 $ 8,400 $ 8,400
* $10,000 _ 12% _ 3/12 = $300.
Problem 9-19 (continued)
5. Income Statement:
NORDIC COMPANY
Income Statement
For the Quarter Ended June 30
Sales........................................................ $245,000
Less cost of goods sold:
Beginning inventory (given) ..................... $ 12,600
Add purchases (Part 2) ............................ 143,400
Goods available for sale ........................... 156,000
Ending inventory (Part 2)......................... 9,000 147,000
Gross margin ............................................ 98,000
Less operating expenses:
Salaries and wages (Part 3) ..................... 22,500
Shipping (Part 3) .................................... 14,700
Advertising (Part 3) ................................. 18,000
Depreciation........................................... 6,000
Other expenses (Part 3) .......................... 9,800 71,000
Net operating income ................................ 27,000
Less interest expense (Part 4)..................... 300
Net income ............................................... $ 26,700
Problem 9-19 (continued)
6. Balance sheet:
NORDIC COMPANY
Balance Sheet
June 30

Assets
Current assets:
Cash (Part 4)................................................................. $ 8,400
Accounts receivable (80% _ $90,000) .............................. 72,000
Inventory (Part 2) .......................................................... 9,000
Total current assets .......................................................... 89,400
Buildings and equipment, net
($214,100 + $14,500 – $6,000) ...................................... 222,600
Total assets ..................................................................... $312,000

Liabilities and Equity

Current liabilities:
Accounts payable (Part 2: 50% _ $46,800)...... $ 23,400
Shareholders’ equity:
Capital stock................................................. $190,000
Retained earnings* ....................................... 98,600 288,600
Total liabilities and equity ................................. $312,000

* Retained earnings, beginning..................... $ 75,400

Add net income........................................ 26,700
Total ....................................................... 102,100
Less dividends ......................................... 3,500
Retained earnings, ending ......................... $ 98,600