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28 Sep 2019
PROBLEM 22-5B Near the end of 2015, the management of IsleCorp., a merchandising company, prepared the following estimated balance sheet for December 31,2015. ISLE CORPORATION Estimated Balance Sheet 31-Dec-15 Assets Liabilities and Equity Cash 36,000 Accounts payable 360,000 Accounts Receivable 525,000 Bank loan Payable 15,000 Inventory 150,000 Taxes payable (due 3/15/2016) 90,000 Total Current Assets 711,000 Total Liabilities 465,000 Equipment 540,000 Common Stock 472,500 Less Accumulated Depreciation 67,500 Retained Earnings 246,000 Equipment, net 472,500 Total Stockholders' equity 718,500 Total Assets 1,183,500 Total liabilities and equity 1,183,500 To prepare the master budget for January, Februaryand March of 2016, management gathers the following information a. Isle Corp.'s single product is purchased for $30per unit and resold for $45 per unit. The expected inventory level of 5,000 units onDecember 31, 2015, is more than management's desired level for 2015, which is 25% of the next month'sexpected sales (in units). Expected sales are: January, 6,000 units; February, 8,000 units; March,10,000 units; and April, 9,000 units. b. Cash sales and credit sales represent 25% and 75%,respectively, of total sales. Of the credit sales, 60% is collected in the first month after themonth of sale and 40% in the second month after the month of sale. For the $525,000 accountsreceivable balance at December 31, 2015, $315,000 is collected in January 2016 and theremaining $210,000 is collected in February 2016. c. Merchandise purchases are paid for as follows: 20%in the first month after the month of purchase and 80% in the second month after the month ofpurchase. For the $360,000 accounts payable balance at December 31, 2015, $72,000 is paid inJanuary 2016 and the remaining $288,000 is paid in February 2016. d. Sales commissions equal to 20% of sales are paideach month. Sales salaries (excluding commissions) are $90,000 per year. e. General and administrative salaries are $144,000per year. Maintenance expense equals $3,000 per month and is paid in cash. f. Equipment reported in the December 31, 2015balance sheet was purchased in January 2015. It is being depreciated over 8 years under the straight-linemethod with no salvage value. The following amounts for new equipment purchases are planned in the comingquarter: January, $72,000; February, $96,000; and March, $28,800. This equipment will be depreciatedusing the straight-line method over 8 years with no salvage value. A full month's depreciation istaken for the month in which equipment is purchased. g. The company plans to acquire land at the end ofMarch at a cost of $150,000, which will be paid with cash on the last day of the month. h. Isle Corp. has a working arrangement with its bankto obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at eachmonth-end based on the beginning balance. Partial or full payments on these loans can be made o the last dayof the month. Isle has agreed to maintain a minimum ending cash balance of $36,000 in each month. i. The income ta rate for the company is 40%. Incometaxes on the first quarter's income will not be paid until April 15. Prepare a master budget for the first three monthsof 2016. Round to the nearest dollar.
PROBLEM 22-5B | ||||||||||||
Near the end of 2015, the management of IsleCorp., a merchandising company, prepared the | ||||||||||||
following estimated balance sheet for December 31,2015. | ||||||||||||
ISLE CORPORATION | ||||||||||||
Estimated Balance Sheet | ||||||||||||
31-Dec-15 | ||||||||||||
Assets | Liabilities and Equity | |||||||||||
Cash | 36,000 | Accounts payable | 360,000 | |||||||||
Accounts Receivable | 525,000 | Bank loan Payable | 15,000 | |||||||||
Inventory | 150,000 | Taxes payable (due 3/15/2016) | 90,000 | |||||||||
Total Current Assets | 711,000 | Total Liabilities | 465,000 | |||||||||
Equipment | 540,000 | Common Stock | 472,500 | |||||||||
Less Accumulated Depreciation | 67,500 | Retained Earnings | 246,000 | |||||||||
Equipment, net | 472,500 | Total Stockholders' equity | 718,500 | |||||||||
Total Assets | 1,183,500 | Total liabilities and equity | 1,183,500 | |||||||||
To prepare the master budget for January, Februaryand March of 2016, management gathers the following | ||||||||||||
information | ||||||||||||
a. | Isle Corp.'s single product is purchased for $30per unit and resold for $45 per unit. The | |||||||||||
expected inventory level of 5,000 units onDecember 31, 2015, is more than management's desired | ||||||||||||
level for 2015, which is 25% of the next month'sexpected sales (in units). Expected sales are: | ||||||||||||
January, 6,000 units; February, 8,000 units; March,10,000 units; and April, 9,000 units. | ||||||||||||
b. | Cash sales and credit sales represent 25% and 75%,respectively, of total sales. Of the credit sales, | |||||||||||
60% is collected in the first month after themonth of sale and 40% in the second month after | ||||||||||||
the month of sale. For the $525,000 accountsreceivable balance at December 31, 2015, | ||||||||||||
$315,000 is collected in January 2016 and theremaining $210,000 is collected in February 2016. | ||||||||||||
c. | Merchandise purchases are paid for as follows: 20%in the first month after the month of purchase | |||||||||||
and 80% in the second month after the month ofpurchase. For the $360,000 accounts payable | ||||||||||||
balance at December 31, 2015, $72,000 is paid inJanuary 2016 and the remaining $288,000 | ||||||||||||
is paid in February 2016. | ||||||||||||
d. | Sales commissions equal to 20% of sales are paideach month. Sales salaries (excluding commissions) | |||||||||||
are $90,000 per year. | ||||||||||||
e. | General and administrative salaries are $144,000per year. Maintenance expense equals $3,000 per month | |||||||||||
and is paid in cash. | ||||||||||||
f. | Equipment reported in the December 31, 2015balance sheet was purchased in January 2015. It is being | |||||||||||
depreciated over 8 years under the straight-linemethod with no salvage value. The following amounts for | ||||||||||||
new equipment purchases are planned in the comingquarter: January, $72,000; February, $96,000; and | ||||||||||||
March, $28,800. This equipment will be depreciatedusing the straight-line method over 8 years with no | ||||||||||||
salvage value. A full month's depreciation istaken for the month in which equipment is purchased. | ||||||||||||
g. | The company plans to acquire land at the end ofMarch at a cost of $150,000, which will be paid with cash | |||||||||||
on the last day of the month. | ||||||||||||
h. | Isle Corp. has a working arrangement with its bankto obtain additional loans as needed. The interest rate | |||||||||||
is 12% per year, and interest is paid at eachmonth-end based on the beginning balance. Partial or full | ||||||||||||
payments on these loans can be made o the last dayof the month. Isle has agreed to maintain a minimum | ||||||||||||
ending cash balance of $36,000 in each month. | ||||||||||||
i. | The income ta rate for the company is 40%. Incometaxes on the first quarter's income will not be paid until | |||||||||||
April 15. | ||||||||||||
Prepare a master budget for the first three monthsof 2016. Round to the nearest dollar. | ||||||||||||
Sixta KovacekLv2
28 Sep 2019