Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 22, Problem 8BPSB
To determine

Concept Introduction:

Master Budget-

Master budget is a sum of all lower level budgets which are produced at different functional areas of the company. It helps in providing good coordination among all level managers. It also helps the manager in evaluating the actual performance and comparing it with the standards set by them.

Requirement 1-

To prepare:

Monthly sales budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

ISLE Corporation
Monthly sales budget (in units and sales value)
         
  January February March Quarter
Sales in units 6,000 8,000 10,000 24,000
Selling price per unit $45 $45 $45 $45
Dollar sales value($) 270,000 360,000 450,000 1,080,000

Explanation of Solution

Dollar sales value for each month is calculated as follows-

Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=6,000×$45Dollar sales value for January=$270,000Dollar sales value for February=8,000×$45Dollar sales value for February=$360,000Dollar sales value for March=10,000×$45Dollar sales value for March=$450,000Dollar sales value for Quarter=24,000×$45Dollar sales value for Quarter=$1,080,000

Conclusion

Thus, the monthly sales budget has been prepared both in units and sales value.

To determine

Requirement 2-

To prepare:

Merchandise purchases budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

Budgeted purchases: Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

ISLE Corporation
Monthly merchandise purchases budgets
         
  January February March Quarter
Budgeted Sales for the month 6,000 8,000 10,000  
Ending inventory in units 2,000 2,500 2,250  
Total Needs 8,000 10,500 12,250  
Less: Beginning inventory (5,000) (2,000) (2,500)  
Merchandise purchases in units required 3,000 8,500 9,750  
Cost per unit $30 $30 $30  
Dollar value of purchases ($) 90,000 255,000 292,500 637,500

Explanation of Solution

First, ending inventory in units is required to be calculated-

Calculation of ending inventory in units is as under-

Ending inventory requirement = 25% of Next Months Expected sales unitsEnding inventory requirement for January =25%X Expected sales units for FebruaryEnding inventory requirement for January =25%X 8,000 unitsEnding inventory requirement for January =2,000 unitsEnding inventory requirement for February =25%X Expected sales units for MarchEnding inventory requirement for February =25% X 10,000 unitsEnding inventory requirement for February =2,500 unitsEnding inventory requirement for March =25%X Expected sales units for AprilEnding inventory requirement for March =25% X 9,000unitsEnding inventory requirement for March  = 2,250 units

Now, Merchandise purchases required is to be calculated-

Required merchandise purchases= Ending Inventory + Expected sales of the month  Beginning Inventory

Given, Expected sales of the month-

• January – 6,000 units

• February – 8,000 units

• March – 10,000 units

Ending inventory –

• January – 2,000 units

• February – 2,500 units

• March – 2,250 units

Beginning inventory-

- Ending inventory of the previous month shall be beginning inventory of current month.

• January – 5,000 units (given)

• February - 2,000 units

• March – 2,500 units

Total requirement for the month of January, February and March-

Required merchandise purchases= Ending Inventory + Expected sales of the month  Beginning InventoryRequired merchandise purchases for January=2,000 units+6,000 units5,000 unitsRequired merchandise purchases for January=3,000 unitsRequired merchandise purchases for February=2,500 units+8,000 units2,000 unitsRequired merchandise purchases for February =8,500unitsRequired merchandise purchases for March=2,250 units+10,000 units2,500 unitsRequired merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

Dollar value of purchase =Required merchandise purchase × Cost per unitDollar value of purchase for January=3,000 units×$30Dollar value of purchase for January=$90,000Dollar value of purchase for February=8,500 units×$30Dollar value of purchase for February=$255,000Dollar value of purchase for March=9,750 units×$30Dollar value of purchase for March=$292,500 

Conclusion

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

To determine

Requirement 3-

To prepare:

Monthly selling expense Budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Monthly Selling Expense budgets
       
  January ($) February ($) March ($)
Sales commissions 54,000 72,000 90,000
Sales salaries 7,500 7,500 7,500
Selling expenses 61,500 79,500 97,500

Explanation of Solution

First we need to calculate Sales commissions.

Calculation of sales commission is as under-

Sales Commission=20%×SalesSales Commission for January=20%×$270,000Sales Commission for January=$54,000Sales Commission for February=20%×$360,000Sales Commission for February=$72,000Sales Commission for March=20%×$450,000Sales Commission for March=$90,000

Sales salary for each month-

Sales salary for each month=$90,00012 monthsSales salary for each month=$7,500

Selling expense for each month is calculated as under-

Selling Expense=Sales Commission+Sales salarySelling Expense for January=$54,000+$7,500Selling Expense for January=$61,500Selling Expense for February=$72,000+$7,500Selling Expense for February=$79,500Selling Expense for March=$90,000+$7,500Selling Expense for March=$97,500

Conclusion

Thus, the selling expense budget is prepared for the month of January, February and March.

To determine

Requirement 4-

To prepare:

Monthly general and administrative expense Budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Monthly general and administrative budgets
       
  January February March
General and administrative salaries 12,000 12,000 12,000
Maintenance expense 3,000 3,000 3,000
Total general and administrative expenses 15,000 15,000 15,000

Explanation of Solution

Given: Maintenance Expense = $3,000 per month

General and administrative salaries for each month-

General and administrative salaries for each month=Total salary for year12 monthsGeneral and administrative salaries for each month=$144,00012 monthsGeneral and administrative salaries for each month=$12,000

Total General and administrative expenses for each month is calculated as under-

Total General and administrative expenses= General and administrative salaries+Maintenance ExpenseTotal General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000Total General and administrative expenses for February=$12,000+$3,000Total General and administrative expenses for February=$15,000Total General and administrative expenses for March=$12,000+$3,000Total General and administrative expenses for March=$15,000

Conclusion

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

To determine

Requirement 5-

To prepare:

Monthly capital expenditures Budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Capital Expenditures budget
         
  January February March Quarter
Purchase of Equipment 72,000 96,000 28,800 196,800
Purchase of Land 0 0 150,000 150,000
Total Capital expenditure 72,000 96,000 178,800 346,800

Explanation of Solution

Given-

• Purchase of Equipment in January = $72,000

• Purchase of Equipment in February = $96,000

• Purchase of Equipment in March = $28,800

• Purchase of Land in March = $150,000

Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion

Thus, Capital expenditure budget is prepared.

To determine

Requirement 6-

To prepare:

Monthly Cash Budget

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Monthly cash budgets
       
  January February March
Beginning cash balance 36,000 198,000 123,000
Cash receipts:      
Cash sales 67,500 90,000 112,500
Collection from -      
Beginning accounts receivable 315,000 210,000  
Credit sales of January   121,500 81,000
Credit sales of February     162,000
Total cash receipts 382,500 421,500 355,500
Total cash available 418,500 619,500 478,500
Less: Cash disbursements-      
Merchandise purchases      
Beginning accounts payable 72,000 288,000  
January accounts payable   18,000 72,000
February accounts payable     51,000
Selling expenses 61,500 79,500 97,500
General and administrative expenses 15,000 15,000 15,000
Capital Expenditure 72,000 96,000 178,800
Taxes     90,000
Total cash disbursements 220,500 496,500 504,300
Surplus/ ( deficiency) of cash 198,000 123,000 (25,800)
Borrowing / ( Repayment)     61,800
Ending cash balance 198,000 123,000 36,000

Explanation of Solution

Cash sales is calculated as under-

Cash sales = 25% ×Total sales of the monthCash sales for January=25%×$270,000Cash sales for January=$67,500Cash sales for February=25%×$360,000Cash sales for February=$90,000Cash sales for March=25%×$450,000Cash sales for March=$112,500

Beginning accounts receivable-

Given-

• January-$315,000

• February-$210,000

Credit Sales-

For the month of February-

Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[ Total January sales ×75% ]Credit sale receipt in the month of February=60%×[ $270,000×75% ]Credit sale receipt in the month of February=60%×$202,500Credit sale receipt in the month of February=$121,500

For the month of March-

Credit sale receipt ={ 40%×January Credit sales }+{ 60%×February Credit sales }Credit sale receipt ={ 40%×[ Total January sales ×75% ] }+{ 60%×[ Total February sales ×75% ] }Credit sale receipt ={ 40%×[ $270,000×75% ] }+{ 60%×[ $360,000×75% ] }Credit sale receipt ={ 40%×$202,500 }+{ 60%×$270,000 }Credit sale receipt =$81,000+$162,000Credit sale receipt =$243,000

Beginning accounts payable-

Given-

• January-$72,000

• February-$288,000

Calculation of accounts payable is as under-

For the month of February-

Accounts payable=20%×January purchasesAccounts payable=20%×$90,000Accounts payable=$18,000

For the month of March-

Accounts payable=(80%×January purchases)+(20%×February purchases)Accounts payable=(80%×$90,000)+(20%×$255,000)Accounts payable=$72,000+$51,000Accounts payable=$123,000

To determine

Requirement 7-

To prepare:

Budgeted income statement

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Income Statement
     
Particulars Amount ($) Amount ($)
Sales   1,080,000
Cost of merchandise sold   720,000
Gross Profit   360,000
Operating expenses:    
Selling expenses 238,500  
General and administrative expenses 45,000  
Depreciation expense 21,425 304,925
Income before tax   55,075
Tax @ 40%   22,030
Net operating income   33,045

Explanation of Solution

Income before tax-

Income before tax= SalesCost of goods soldSelling ExpenseGeneral and administrative expenses Depreciation expenseIncome before tax=$1,080,000$720,000$238,500$45,000$21,425Income before tax=$55,075

Tax Expense-

Tax Expense=Income before tax×Tax RateTax Expense=$55,075×40%Tax Expense=22,030

Net Operating income is calculated as under-

Net Operating income= Income before taxTax ExpenseNet Operating income=$55,075$22,030Net Operating income=33,045

Conclusion

Thus, Income statement is prepared for the quarter.

To determine

Requirement 8-

To prepare:

Budgeted Balance sheet.

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

ISLE Corporation
Balance sheet as of March 31, 2018
     
  Amount ($) Amount ($)
Assets    
Cash 36,000  
Accounts receivable 445,500  
Inventory 67,500  
Total current assets   549,000
Land   150,000
Equipment gross 736,800  
Accumulated depreciation 88,925  
Equipment net   647,875
Total assets   1,346,875
Stockholder's Equity and Liabilities    
Accounts payable 496,500  
Bank loan payable 76,800  
Tax payable 22,030  
Current liabilities   595,330
Common stock   472,500
Retained earnings   279,045
Total Stockholder's Equity and Liabilities   1,346,875

Explanation of Solution

Total Assets=Total Current assets+Land+EquipmentTotal Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earningsTotal Stockholder's Equity and Liabilities=$595,330+$472,500+$279,045Total Stockholder's Equity and Liabilities=$1,346,875

Conclusion

Thus, Budgeted balance sheet is prepared with total of $1,346,875.

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Chapter 22 Solutions

Fundamental Accounting Principles

Ch. 22 - Apple regularly uses budgets. What is the...Ch. 22 - Prob. 12DQCh. 22 - Prob. 13DQCh. 22 - Prob. 14DQCh. 22 - Prob. 15DQCh. 22 - Prob. 1QSCh. 22 - Prob. 2QSCh. 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 - Prob. 33QSCh. 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 - Prob. 34ECh. 22 - Exercise 22-35 Activity-based budgeting A1 Render...Ch. 22 - Prob. 1APSACh. 22 - Prob. 2APSACh. 22 - Problem 22-3A Manufacturing: Preparation and...Ch. 22 - Prob. 4APSACh. 22 - Prob. 5APSACh. 22 - Prob. 6APSACh. 22 - Prob. 7APSACh. 22 - Prob. 8APSACh. 22 - Problem 22-1B Manufacturing: Preparing production...Ch. 22 - Problem 22-2B Manufacturing: Cash budget P2 A1...Ch. 22 - Problem 22-3B Manufacturing: Preparation and...Ch. 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 - Marilyn and Michelle sells a foam mattress cover...Ch. 22 - To help understand the factors impacting a sales...Ch. 22 - Prob. 9BTN
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