Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 22, Problem 7BPSB
To determine

1.

Introduction:

The cash collection of the credit sales for a company is with respect to the policy designed and followed by the management.

To calculate:

To calculate the cash collections of the credit sales (account receivable) in each of the months of March and April respectively.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The table below shows the cash collections of the credit sales (account receivable) in each of the months of March and April:

Particulars March ($) April ($)
Cash collection of January credit sales 91,080 0
Cash collection of February credit sales 173,250 113,850
Cash collection of March credit sales 167,200 146,300
Cash collection of April credit sales 0 165,000
Cash collections of the credit sales 431,530 425,150

Explanation of Solution

The cash collections of the credit sales of a company is recently experienced as 40% of credit sales is collected in the month of the sale, 35% in the month after the sale, 23% in the second month after the sale and 2% proves to be uncollectible as per the information provided. Therefore, the same concept is applied to calculate the cash collections from the credit sales for the given months respectively.

To determine

2.

Introduction:

A production budget is a tool to identify the inventory levels as required by the management for its business operations. We can also calculate the budgeted ending inventories in units, using a production budget and sales forecast.

To calculate:

To calculate the budgeted ending inventories (units) for January, February, March and April respectively.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The table below shows the budgeted ending inventories (units) for January, February, March and April:

Particulars Units
January February March April
Inventory at the end of the month will be 20% of next month’s unit sales 4,500 3,800 3,750 4,200
Add- Safety Stock 100 100 100 100
Inventory at the end of the month 4,600 3,900 3,850 4,300

Explanation of Solution

The company has a policy to maintain an ending monthly inventory of 20% of the next month’s unit sales plus a safety stock of 100 units. Therefore, the sales forecast is 22,500 units for February, 19,000 units for March, 18,750 units for April and 21,000 units for May as per the information provided.

To determine

3.

Introduction:

A purchases budget contains the amount of inventory that a company must purchase during the budget period. The amount stated in the budget is the amount needed to ensure that there is sufficient inventory on hand to meet customer orders for products.

To calculate:

To calculate the merchandise purchases budget for February, March and April.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The table below shows the merchandise purchases budget for February, March and April:

Particulars Units
February March April
Budgeted sales 22,500 19,000 18,750
Add- Inventory at the end of the month 3,900 3,850 4,300
Less- Inventory at the beginning of the month 4,600 3,900 3,850
Purchases budget 21,800 18,950 19,200
(*) Purchase price per unit $12 $12 $12
Purchases budget (dollar amount) $261,600 $227,400 $230,400

Explanation of Solution

The inventory positions at the beginning and end of the month as required by the management of the company adjusted to the budgeted sales quantity as given, have been used to obtain the budgeted purchases quantity respectively. The budgeted sales quantity and the inventory units required at the end of the month have been added, while the inventory units at the beginning of the month is reduced, to calculate the budgeted purchases quantity respectively. The inventory at the beginning of the current month will be same as the inventory at the end of the previous month (for example, the inventory at the beginning of the February month will be same as the inventory at the end of the January month which is 4,600 units) and so on. Also, the purchase price is $12 per unit as per the information provided to calculate the dollar amount of purchases budget.

To determine

4.

Introduction:

The cash payments on product purchases is with respect to the policy followed by the management and the credit period allowed by the suppliers of such company.

To calculate:

To calculate the cash payments on product purchases for March and April.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The table below shows the cash payments on product purchases for March and April:

Particulars March ($) April ($)
Cash payments for February product purchases 183,120 0
Cash payments for March product purchases 68,220 159,180
Cash payments for April product purchases 0 69,120
Cash payments on product purchases 251,340 228,300

Explanation of Solution

The cash payments on product purchases for the company is as 30% paid in that month and other 70% is paid in the next month as per the information provided. Therefore, the same concept is applied to calculate the cash payments on product purchases for the given months respectively.

To determine

5.

Introduction:

A cash budget is a budget of expected cash receipts and disbursements during the period. These cash inflows and outflows include revenues collected, expenses paid, and loans. In other words, a cash budget is an estimated projection of the company's cash position in the future.

To calculate:

To prepare a cash budget for March and April respectively.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The table below shows the cash budget for March and April respectively:

Particulars Reference Amount ($)
March April
Opening Cash Balance   50,000 58,070
Add- Cash Receipts      
Cash collections of the credit sales   431,530 425,150
Total Cash Collection (A) 481.530 483,220
       
Total Cash Expenses-      
Cash payments on product purchases   251,340 228,300
Selling and administrative expenses   160,000 160,000
Interest on loan taken from bank   120 0
Total Cash Expenditure (B) 411,460 388,300
       
Net Cash Balance (A - B) 70,070 94,920
Less- Loan from bank repaid   12,000 0
Closing Cash Balance   58,070 94,920

Explanation of Solution

The cash budget for March and April as calculated above, is explained below:

1. The cash collections of the credit sales of a company is recently experienced as 40% of credit sales is collected in the month of the sale, 35% in the month after the sale, 23% in the second month after the sale and 2% proves to be uncollectible as per the information provided. Therefore, the same concept is applied to calculate the cash collections from the credit sales for the given months respectively.

2. The cash payments on product purchases for the company is as 30% paid in that month and other 70% is paid in the next month as per the information provided. Therefore, the same concept is applied to calculate the cash payments on product purchases for the given months respectively.

3. As per the information provided, the selling and administrative expenses ($1,920,000 divided by 12 months, which is $160,000 per month) of the company are paid in full in the month of its expenditure itself.

4. The outstanding loan from bank of $12,000 is discharged along with interest of $120 at the rate of 12% per annum, at the end of March month respectively. However, as the loan from bank is repaid in full, the company do not have any loan balance outstanding at the end of the month March and April respectively.

Conclusion

Thus, we have calculated a cash budget for March and April as required.

To determine

6.

Introduction:

A cash budget is a budget of expected cash receipts and disbursements during the period. These cash inflows and outflows include revenues collected, expenses paid, and loans. In other words, a cash budget is an estimated projection of the company's cash position in the future.

To determine:

To analyze the advantages for the management from a cash budget, in knowing the loan needs in advance for the company.

Expert Solution
Check Mark

Answer to Problem 7BPSB

Solution:

The management knowing the loan needs in advance from a cash budget will help the company to reduce the credit period for its customers, avoidance of shortages of cash and arranging the loan requirements.

Explanation of Solution

The advantages for the management from a cash budget, in knowing the loan needs in advance for the company are explained below:

1. Reduce the credit period for its customers- The need for change in account receivables policy of the company may be required by the management. However, if the same period cannot be reduced then subsequently the company may procure necessary loans for liquidity purposes with the help of a cash budget.

2. Avoidance of shortages of cash- The management, with the help of a cash budget, will know the cash shortages for such period and may act proactively to avoid such situation.

3. Arranging the loan requirements- With the help of a cash budget, it will be smart to arrange such short-term loans as per requirements of the company.

Conclusion

Thus, we conclude that the management will be benefited in knowing the loan needs in advance for the company, with the help of a cash budget.

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Chapter 22 Solutions

Fundamental Accounting Principles -Hardcover

Ch. 22 - Apple regularly uses budgets. What is the...Ch. 22 - Prob. 12DQCh. 22 - Prob. 13DQCh. 22 - Prob. 14DQCh. 22 - Prob. 1QSCh. 22 - Budgeting process C1 Good management includes good...Ch. 22 - Components of a master budget C2 Identify which of...Ch. 22 - Prob. 4QSCh. 22 - Prob. 5QSCh. 22 - Prob. 6QSCh. 22 - Prob. 7QSCh. 22 - Prob. 8QSCh. 22 - Prob. 9QSCh. 22 - Prob. 10QSCh. 22 - Prob. 11QSCh. 22 - Prob. 12QSCh. 22 - Prob. 13QSCh. 22 - Prob. 14QSCh. 22 - Prob. 15QSCh. 22 - Prob. 16QSCh. 22 - Prob. 17QSCh. 22 - Prob. 18QSCh. 22 - Prob. 19QSCh. 22 - Prob. 20QSCh. 22 - Prob. 21QSCh. 22 - Prob. 22QSCh. 22 - Prob. 23QSCh. 22 - Prob. 24QSCh. 22 - Prob. 25QSCh. 22 - Prob. 26QSCh. 22 - Prob. 27QSCh. 22 - Prob. 28QSCh. 22 - Prob. 29QSCh. 22 - Prob. 30QSCh. 22 - Activity-based budgeting Activity-based budgeting...Ch. 22 - Prob. 32QSCh. 22 - Exercise 22-1 Budget consequences C1 Participatory...Ch. 22 - Exercise 22-2 Master budget definitions C2 Match...Ch. 22 - Prob. 3ECh. 22 - Prob. 4ECh. 22 - Prob. 5ECh. 22 - Prob. 6ECh. 22 - Prob. 7ECh. 22 - Prob. 8ECh. 22 - Prob. 9ECh. 22 - Prob. 10ECh. 22 - Prob. 11ECh. 22 - Prob. 12ECh. 22 - Prob. 13ECh. 22 - Prob. 14ECh. 22 - Prob. 15ECh. 22 - Prob. 16ECh. 22 - Prob. 17ECh. 22 - Prob. 18ECh. 22 - Prob. 19ECh. 22 - Prob. 20ECh. 22 - Prob. 21ECh. 22 - Prob. 22ECh. 22 - Prob. 23ECh. 22 - Prob. 24ECh. 22 - Prob. 25ECh. 22 - Prob. 26ECh. 22 - Prob. 27ECh. 22 - Prob. 28ECh. 22 - Prob. 29ECh. 22 - Prob. 30ECh. 22 - Prob. 31ECh. 22 - Prob. 32ECh. 22 - Prob. 33ECh. 22 - Exercise 22-35 Activity-based budgeting A1 Render...Ch. 22 - Prob. 1APSACh. 22 - Prob. 2APSACh. 22 - Prob. 3APSACh. 22 - Prob. 4APSACh. 22 - Prob. 5APSACh. 22 - Prob. 6APSACh. 22 - Prob. 7APSACh. 22 - Prob. 8APSACh. 22 - Problem 22-1B Manufacturing: Preparing production...Ch. 22 - Prob. 2BPSBCh. 22 - Prob. 3BPSBCh. 22 - Prob. 4BPSBCh. 22 - Prob. 5BPSBCh. 22 - Prob. 6BPSBCh. 22 - Prob. 7BPSBCh. 22 - Prob. 8BPSBCh. 22 - Prob. 22SPCh. 22 - Prob. 1BTNCh. 22 - Prob. 2BTNCh. 22 - Both the budget process and budgets themselves can...Ch. 22 - The sales budget is usually the first and most...Ch. 22 - Prob. 5BTNCh. 22 - Prob. 6BTNCh. 22 - Prob. 7BTNCh. 22 - To help understand the factors impacting a sales...Ch. 22 - Prob. 9BTN
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