Glow, Inc. is interested in purchasing some new manufacturingequipment right after the beginning of the new year. They wouldlike to finance the new equipment with cash and marketablesecurities, but if necessary they can get a short-term loan from alocal bank. You have been engaged to prepare a master budget forGlow, Inc. for the first quarter of 2016. Glow, Inc. is a small,rapidly growing manufacturer of lighting equipment. The companyâsmain product line is table lamps. The marketing manager hasrecently completed a sales forecast. She believes the companyâssales during the first quarter of 2016 will increase by 15 percenteach month over the previous monthâs sales. Then sales are expectedto remain constant for several months. Glow Inc.âs projectedbalance sheet as of December 31, 2015 is as follows:
Cash $60,000
Accountsreceivable 312,000
Marketablesecurities 30,000
Inventory 261,625
Buildings and equipment (net of accumulateddepreciation) 1,298,519
Total assets $1,962,144
Accounts payable $366,844
Bond interestpayable 12,500
Property taxespayable 4,800
Bonds payable (10%; due in2020) 600,000
Common stock 750,000
Retainedearnings 228,000
Total liabilities and stockholders' equity $1,962,144
The controller is now preparing a budget for the first quarterof 2016. In the process, the following information has beenaccumulated:
1) Projected sales for December 2015 are $650,000. Credit salesare typically 60% of total sales. Glow, Inc.âs credit experienceindicates that 20% of credit sales are collected during the monthof sale, and the remainder are collected during the followingmonth.
2) Glow, Inc.âs cost of goods sold generally runs at 70% ofsales. Inventory is purchased on account and 25% of each monthâspurchases are paid during the month of purchase. The remainder ispaid during the following month. In order to have adequate stocksof inventory on hand, the company attempts to have inventory onhand at the end of each month equal to half of the next monthâsprojected cost of goods sold.
3) The controller has estimated that Glow Inc.âs other monthlyexpenses will be as follows:
Sales salaries $20,000
Advertising andpromotion 25,000
Administrativesalaries 35,000
Depreciation 15,000
Interest onbonds 2,500
Propertytaxes 1,200
In addition, sales commissions run at the rate of 3 percent ofsales and are paid in the same month as the sale.
4) The company president has indicated that the company shouldinvest $275,000 in state of the art manufacturing equipment justafter the new year begins. This equipment purchase will be financedprimarily from the companyâs cash and marketable securities.However, the president believes the company needs to keep a minimumcash balance of $50,000. If necessary, the remainder of theequipment purchase will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months. Thecurrent short-term interest rates are 8 percent per year and areexpected to remain at this rate through the time the equipment ispurchased. If a loan is necessary, the president has decided itshould be paid off by the end of the first quarter if possible.
5) Glow, Inc.âs board of directors has indicated an intention todeclare and pay dividends of $100,000 on the last day of eachquarter.
6) The interest on any short-term borrowing will be paid whenthe loan is repaid. Interest on Glow, Inc.âs bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7) Property taxes are paid semiannually on February 28 andAugust 31 for the preceding six-month period.
Required: Prepare Glow, Inc.âs master budget for thefirst quarter of 2016 by completing the following schedules andstatements. Round all answers to the nearest dollar (do not includecents).
1.)
Sales budget:
2015
2016
Decemeber
January
February
March
1st Quarter
Total sales
Cash sales
Sale on account
2.)
Cash receipts budget:
2016
January
February
March
1st Quarter
Cash sales
Cash collections from credit sales made
During current month
Cash collections from credit sales made
During preceding month
Total cash receipts
3.)
Purchse budget:
2015
2016
Decemeber
January
February
March
1st Quarter
Budgeted cost of goods sold
Add: Desired ending
Inventory
Total goods needed
Less: Expected beginning
Inventory
Purchases
4.)
Cash disbursements budget:
2016
January
February
March
1st Quarter
Inventory purchses:
Cash payments for puschases during the current month
Cash payments for puschases during the preceding month
Total cash payments for inventory purchases
Other expenses:
Sales salaries
Advertising and promotion
Administrative salaries
Interest on bonds
Property taxes
Sales commissions
Total cash payments for other expenses
Total cash disbursements
Complete the first three lines of the summary budget. Then dothe analysis of short-term financing needs in requirement (6). Usethis answer to help complete requirement (5)
5.)
Summary cash budget:
20x1
Cash receipts (sch 2)
January
February
March
1st Quarter
Less: Cash disbursements (sch 4)
Change in cash balance during period due to operations
Sale of marketable securities (1/2/16)
Proceeds from bank loan (1/2/16)
Purchase of equipment
Repayment of bank loan (3/31/16)
Interest on bank loan
Payment of dividends
Change in cash balance during first quarter
XXXXX
XXXXX
XXXXX
Cash balance, 1/1/16
XXXXX
XXXXX
XXXXX
Cash balance, 3/31/16
XXXXX
XXXXX
XXXXX
6.) Analysis of short-term financing needs:
Projected cash balance as of December 31, 2015
$
Less: minimum cash balance
Cash available for equipment purchases
$
Projected proceeds from sale of marketable securities
Cash available
$
Less: Cost of investment in equipment
Required short-term borrowing
$
7) Prepare Glow, Inc.âs budgeted income statement for the firstquarter of 2016. (Ignore income taxes.)
8) Prepare Glow, Inc.âs budgeted statement of retained earningsfor the first quarter of 2016.
9) EXTRA CREDIT (5 points): Prepare Glow, Inc.âs budgetedbalance sheet as of March 31, 2016. (Hint: On March 31, 2016, BondInterest Payable is $5,000 and Property Taxes Payable is$1,200.)
Please show details for 1-6
Glow, Inc. is interested in purchasing some new manufacturingequipment right after the beginning of the new year. They wouldlike to finance the new equipment with cash and marketablesecurities, but if necessary they can get a short-term loan from alocal bank. You have been engaged to prepare a master budget forGlow, Inc. for the first quarter of 2016. Glow, Inc. is a small,rapidly growing manufacturer of lighting equipment. The companyâsmain product line is table lamps. The marketing manager hasrecently completed a sales forecast. She believes the companyâssales during the first quarter of 2016 will increase by 15 percenteach month over the previous monthâs sales. Then sales are expectedto remain constant for several months. Glow Inc.âs projectedbalance sheet as of December 31, 2015 is as follows:
Cash $60,000
Accountsreceivable 312,000
Marketablesecurities 30,000
Inventory 261,625
Buildings and equipment (net of accumulateddepreciation) 1,298,519
Total assets $1,962,144
Accounts payable $366,844
Bond interestpayable 12,500
Property taxespayable 4,800
Bonds payable (10%; due in2020) 600,000
Common stock 750,000
Retainedearnings 228,000
Total liabilities and stockholders' equity $1,962,144
The controller is now preparing a budget for the first quarterof 2016. In the process, the following information has beenaccumulated:
1) Projected sales for December 2015 are $650,000. Credit salesare typically 60% of total sales. Glow, Inc.âs credit experienceindicates that 20% of credit sales are collected during the monthof sale, and the remainder are collected during the followingmonth.
2) Glow, Inc.âs cost of goods sold generally runs at 70% ofsales. Inventory is purchased on account and 25% of each monthâspurchases are paid during the month of purchase. The remainder ispaid during the following month. In order to have adequate stocksof inventory on hand, the company attempts to have inventory onhand at the end of each month equal to half of the next monthâsprojected cost of goods sold.
3) The controller has estimated that Glow Inc.âs other monthlyexpenses will be as follows:
Sales salaries $20,000
Advertising andpromotion 25,000
Administrativesalaries 35,000
Depreciation 15,000
Interest onbonds 2,500
Propertytaxes 1,200
In addition, sales commissions run at the rate of 3 percent ofsales and are paid in the same month as the sale.
4) The company president has indicated that the company shouldinvest $275,000 in state of the art manufacturing equipment justafter the new year begins. This equipment purchase will be financedprimarily from the companyâs cash and marketable securities.However, the president believes the company needs to keep a minimumcash balance of $50,000. If necessary, the remainder of theequipment purchase will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months. Thecurrent short-term interest rates are 8 percent per year and areexpected to remain at this rate through the time the equipment ispurchased. If a loan is necessary, the president has decided itshould be paid off by the end of the first quarter if possible.
5) Glow, Inc.âs board of directors has indicated an intention todeclare and pay dividends of $100,000 on the last day of eachquarter.
6) The interest on any short-term borrowing will be paid whenthe loan is repaid. Interest on Glow, Inc.âs bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7) Property taxes are paid semiannually on February 28 andAugust 31 for the preceding six-month period.
Required: Prepare Glow, Inc.âs master budget for thefirst quarter of 2016 by completing the following schedules andstatements. Round all answers to the nearest dollar (do not includecents).
1.) | Sales budget: | 2015 | 2016 | |||||||||||
Decemeber | January | February | March | 1st Quarter | ||||||||||
Total sales | ||||||||||||||
Cash sales | ||||||||||||||
Sale on account | ||||||||||||||
2.) | Cash receipts budget: | 2016 | ||||||||||||
January | February | March | 1st Quarter | |||||||||||
Cash sales | ||||||||||||||
Cash collections from credit sales made | ||||||||||||||
During current month | ||||||||||||||
Cash collections from credit sales made | ||||||||||||||
During preceding month | ||||||||||||||
Total cash receipts | ||||||||||||||
3.) | Purchse budget: | 2015 | 2016 | |||||||||||
Decemeber | January | February | March | 1st Quarter | ||||||||||
Budgeted cost of goods sold | ||||||||||||||
Add: Desired ending | ||||||||||||||
Inventory | ||||||||||||||
Total goods needed | ||||||||||||||
Less: Expected beginning | ||||||||||||||
Inventory | ||||||||||||||
Purchases | ||||||||||||||
4.) | Cash disbursements budget: | 2016 | ||||||||||||
January | February | March | 1st Quarter | |||||||||||
Inventory purchses: | ||||||||||||||
Cash payments for puschases during the current month | ||||||||||||||
Cash payments for puschases during the preceding month | ||||||||||||||
Total cash payments for inventory purchases | ||||||||||||||
Other expenses: | ||||||||||||||
Sales salaries | ||||||||||||||
Advertising and promotion | ||||||||||||||
Administrative salaries | ||||||||||||||
Interest on bonds | ||||||||||||||
Property taxes | ||||||||||||||
Sales commissions | ||||||||||||||
Total cash payments for other expenses | ||||||||||||||
Total cash disbursements | ||||||||||||||
Complete the first three lines of the summary budget. Then dothe analysis of short-term financing needs in requirement (6). Usethis answer to help complete requirement (5) | ||||||||||||||
5.) | Summary cash budget: | 20x1 | ||||||||||||
Cash receipts (sch 2) | January | February | March | 1st Quarter | ||||||||||
Less: Cash disbursements (sch 4) | ||||||||||||||
Change in cash balance during period due to operations | ||||||||||||||
Sale of marketable securities (1/2/16) | ||||||||||||||
Proceeds from bank loan (1/2/16) | ||||||||||||||
Purchase of equipment | ||||||||||||||
Repayment of bank loan (3/31/16) | ||||||||||||||
Interest on bank loan | ||||||||||||||
Payment of dividends | ||||||||||||||
Change in cash balance during first quarter | XXXXX | XXXXX | XXXXX | |||||||||||
Cash balance, 1/1/16 | XXXXX | XXXXX | XXXXX | |||||||||||
Cash balance, 3/31/16 | XXXXX | XXXXX | XXXXX | |||||||||||
6.) Analysis of short-term financing needs: | ||||||||||||||
Projected cash balance as of December 31, 2015 | $ | |||||||||||||
Less: minimum cash balance | ||||||||||||||
Cash available for equipment purchases | $ | |||||||||||||
Projected proceeds from sale of marketable securities | ||||||||||||||
Cash available | $ | |||||||||||||
Less: Cost of investment in equipment | ||||||||||||||
Required short-term borrowing | $ | |||||||||||||
7) Prepare Glow, Inc.âs budgeted income statement for the firstquarter of 2016. (Ignore income taxes.)
8) Prepare Glow, Inc.âs budgeted statement of retained earningsfor the first quarter of 2016.
9) EXTRA CREDIT (5 points): Prepare Glow, Inc.âs budgetedbalance sheet as of March 31, 2016. (Hint: On March 31, 2016, BondInterest Payable is $5,000 and Property Taxes Payable is$1,200.)
Please show details for 1-6
Related questions
Glow, Inc. is interested in purchasing some new manufacturingequipment right after the beginning of the new year. They wouldlike to finance the new equipment with cash and marketablesecurities, but if necessary they can get a short-term loan from alocal bank. You have been engaged to prepare a master budget forGlow, Inc. for the first quarter of 2016. Glow, Inc. is a small,rapidly growing manufacturer of lighting equipment. The companyâsmain product line is table lamps. The marketing manager hasrecently completed a sales forecast. She believes the companyâssales during the first quarter of 2016 will increase by 15 percenteach month over the previous monthâs sales. Then sales are expectedto remain constant for several months. Glow Inc.âs projectedbalance sheet as of December 31, 2015 is as follows:
Cash $60,000
Accountsreceivable 312,000
Marketablesecurities 30,000
Inventory 261,625
Buildings and equipment (net of accumulateddepreciation) 1,298,519
Total assets $1,962,144
Accounts payable $366,844
Bond interestpayable 12,500
Property taxespayable 4,800
Bonds payable (10%; due in2020) 600,000
Common stock 750,000
Retainedearnings 228,000
Total liabilities and stockholders' equity $1,962,144
The controller is now preparing a budget for the first quarterof 2016. In the process, the following information has beenaccumulated:
1) Projected sales for December 2015 are $650,000. Credit salesare typically 60% of total sales. Glow, Inc.âs credit experienceindicates that 20% of credit sales are collected during the monthof sale, and the remainder are collected during the followingmonth.
2) Glow, Inc.âs cost of goods sold generally runs at 70% ofsales. Inventory is purchased on account and 25% of each monthâspurchases are paid during the month of purchase. The remainder ispaid during the following month. In order to have adequate stocksof inventory on hand, the company attempts to have inventory onhand at the end of each month equal to half of the next monthâsprojected cost of goods sold.
3) The controller has estimated that Glow Inc.âs other monthlyexpenses will be as follows:
Sales salaries $20,000
Advertising andpromotion 25,000
Administrativesalaries 35,000
Depreciation 15,000
Interest onbonds 2,500
Propertytaxes 1,200
In addition, sales commissions run at the rate of 3 percent ofsales and are paid in the same month as the sale.
4) The company president has indicated that the company shouldinvest $275,000 in state of the art manufacturing equipment justafter the new year begins. This equipment purchase will be financedprimarily from the companyâs cash and marketable securities.However, the president believes the company needs to keep a minimumcash balance of $50,000. If necessary, the remainder of theequipment purchase will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months. Thecurrent short-term interest rates are 8 percent per year and areexpected to remain at this rate through the time the equipment ispurchased. If a loan is necessary, the president has decided itshould be paid off by the end of the first quarter if possible.
5) Glow, Inc.âs board of directors has indicated an intention todeclare and pay dividends of $100,000 on the last day of eachquarter.
6) The interest on any short-term borrowing will be paid whenthe loan is repaid. Interest on Glow, Inc.âs bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7) Property taxes are paid semiannually on February 28 andAugust 31 for the preceding six-month period.
Required: Prepare Glow, Inc.âs master budget for thefirst quarter of 2016 by completing the following schedules andstatements. Round all answers to the nearest dollar (do not includecents).
6.) Analysis of short-term financing needs: | ||||||||||||||
Projected cash balance as of December 31, 2015 | $ | |||||||||||||
Less: minimum cash balance | ||||||||||||||
Cash available for equipment purchases | $ | |||||||||||||
Projected proceeds from sale of marketable securities | ||||||||||||||
Cash available | $ | |||||||||||||
Less: Cost of investment in equipment | ||||||||||||||
Required short-term borrowing | $ |
7) Prepare Glow, Inc.âs budgeted income statement for the firstquarter of 2016. (Ignore income taxes.)
8) Prepare Glow, Inc.âs budgeted statement of retained earningsfor the first quarter of 2016.
9) EXTRA CREDIT (5 points): Prepare Glow, Inc.âs budgetedbalance sheet as of March 31, 2016. (Hint: On March 31, 2016, BondInterest Payable is $5,000 and Property Taxes Payable is$1,200.)
