FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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![SALLAT Household Furnishings & Appliances is a family-owned business. You are the
management accountant of the entity and have been given the task of preparing the cash budget
for the business for the quarter ending September 30, 2022. Your data collection has yielded the
following:
i)
Extracts from the sales and purchases budgets are as follows:
Cash
Sales
Cash
Purchases
Sales
Purchases
Month
On Account
On Account
$75,000
$135,000
$480,000
$600,000
$720,000
$390,000
$360,000
$450,000
$400,000
$500,000
May
June
$36,000
$61,700
$86,800
July
August
| September
$105,600
$112,500
$640,000
$800,000
$68,800
$77,250
ii)
An analysis of the records shows that trade receivables (accounts receivable) for sales on
account are settled according to the following credit pattern, in accordance with the credit
terms 5/30, n90:
50% in the month of sale
35% in the first month following the sale
15% in the second month following the sale
iii)
Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60:
70% in the month in which the inventory is purchased
30% in the following month
Computer equipment, which is estimated to cost $350,000, will be acquired in August. The
iv)
manager has planned with the supplier to make a cash deposit of 50% of the amount upon
signing of the agreement in August, with the balance to be settled in four equal monthly
instalments, starting in September 2022.
A treasury bond purchased by the company with a face value of $560,000 is expected to
mature on July 20, 2022. To meet the financial obligations of the business the management
team has decided to liquidate the investment upon maturity. On that date, quarterly interest
computed at a rate of 7½ % per annum is also expected to be collected.
v)
vi)
Fixed operating expenses, which accrue evenly throughout the year, are estimated to be
$1,812,000 per annum (including depreciation on non-current assets of $37,000 per month]
and are settled monthly.
vii)
The management Sallat Household has negotiated with a tenant for rental of storage space
beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over
by the tenant quarterly in advance. Rental relating to the quarter under review becomes
due on July 1.
viii) Other operating expenses are expected to be $432,000 per annum and will be settled
monthly.
Continued...
Continued..
ix)
Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
In the month of August, furniture & fixtures, which cost $455,000, will be sold to an
employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that
time is expected to be $305,000. The employee will be allowed to pay a deposit equal to
60% of the selling price in August with the balance settled in two equal amounts in
September & October.
x)
xi)
As part of its investing activities, the management of Sallat Household Furnishings &
Appliances is in the process of completing a major addition to the business property, which
is estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000
of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.
xii)
The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.](https://content.bartleby.com/qna-images/question/83651816-74d0-4a34-985d-1f5bc861cd30/d5a96e09-6818-4309-a006-38919a2cbfd6/svvu5pa_processed.jpeg)
Transcribed Image Text:SALLAT Household Furnishings & Appliances is a family-owned business. You are the
management accountant of the entity and have been given the task of preparing the cash budget
for the business for the quarter ending September 30, 2022. Your data collection has yielded the
following:
i)
Extracts from the sales and purchases budgets are as follows:
Cash
Sales
Cash
Purchases
Sales
Purchases
Month
On Account
On Account
$75,000
$135,000
$480,000
$600,000
$720,000
$390,000
$360,000
$450,000
$400,000
$500,000
May
June
$36,000
$61,700
$86,800
July
August
| September
$105,600
$112,500
$640,000
$800,000
$68,800
$77,250
ii)
An analysis of the records shows that trade receivables (accounts receivable) for sales on
account are settled according to the following credit pattern, in accordance with the credit
terms 5/30, n90:
50% in the month of sale
35% in the first month following the sale
15% in the second month following the sale
iii)
Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60:
70% in the month in which the inventory is purchased
30% in the following month
Computer equipment, which is estimated to cost $350,000, will be acquired in August. The
iv)
manager has planned with the supplier to make a cash deposit of 50% of the amount upon
signing of the agreement in August, with the balance to be settled in four equal monthly
instalments, starting in September 2022.
A treasury bond purchased by the company with a face value of $560,000 is expected to
mature on July 20, 2022. To meet the financial obligations of the business the management
team has decided to liquidate the investment upon maturity. On that date, quarterly interest
computed at a rate of 7½ % per annum is also expected to be collected.
v)
vi)
Fixed operating expenses, which accrue evenly throughout the year, are estimated to be
$1,812,000 per annum (including depreciation on non-current assets of $37,000 per month]
and are settled monthly.
vii)
The management Sallat Household has negotiated with a tenant for rental of storage space
beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over
by the tenant quarterly in advance. Rental relating to the quarter under review becomes
due on July 1.
viii) Other operating expenses are expected to be $432,000 per annum and will be settled
monthly.
Continued...
Continued..
ix)
Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
In the month of August, furniture & fixtures, which cost $455,000, will be sold to an
employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that
time is expected to be $305,000. The employee will be allowed to pay a deposit equal to
60% of the selling price in August with the balance settled in two equal amounts in
September & October.
x)
xi)
As part of its investing activities, the management of Sallat Household Furnishings &
Appliances is in the process of completing a major addition to the business property, which
is estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000
of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.
xii)
The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.
Transcribed Image Text:(b) Another team member who is preparing the Budgeted Balance Sheet for the business for
the same quarter ending September 30, 2022, has asked you to furnish him with the figures
for the expected trade receivables and payables to be included in the statement. Is that a
reasonable request? If yes, what should these amounts be?
(c)
Upon receipt of the budget, the team manager, Dannie Bruce, has now informed you that, in
keeping with industry players, the management of Sallat Household Furnishings have
indicated an industry requirement to maintain a minimum cash balance of $155,000 each
month. He has also noted that management is very keen on keeping the gearing ratio of the
business as low as possible and would therefore prefer to cushion any gaps internally using
equity financing.
Based on the budget prepared, will the business be achieving this desired industry target?
Suggest three (3) internal strategies that may be employed by management to improve the
organization's monthly cash flow and militate against or reduce any possible shortfall
reflected in the budget prepared. Each strategy must be fully explained.
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- Minden Company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below: Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Minden Company Balance Sheet April 30 Note payable Common stock Retained earnings Total liabilities and stockholders' equity Required: For May: The company is in the process of preparing a budget for May and assembled the following data: a. Sales are budgeted at $247,000 for May. Of these sales, $74,100 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder are collected in the following month. All of the April 30 accounts receivable will be collected in May. b. Purchases of inventory are expected to total $172,000 during May. These purchases will all be on account. Forty percent of all purchases are paid…arrow_forwardShow clear working pleasearrow_forwardDear Bartleby, could you please assist with solving the following question concerning cash collections from sales? Also could you please provide the calculations for solving this, thank you. b. Prepare a schedule of cash collections from sales, by month and in total, for the second quarter of 2019. Soprano Co. is in the process of preparing the second quarter budget for 2019, and the following data have been assembled: The company sells a single product at a selling price of $40 per unit. The estimated sales volume for the next six months is as follows: March 6,000 units June 8,000 units April 7,000 units July 9,000 units May 10,000 units August 6,000 units All sales are on account. The company's collection experience has been that 40% of a month's sales are collected in the month of sale, 55% are collected in the month following the sale, and 5% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts…arrow_forward
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