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
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 22, Problem 8BPSB
Requirement 1-

To determine

To prepare:

Monthly sales budget

Requirement 1-

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)
     
     
     
     
     
     
    JanuaryFebruaryMarchQuarter
    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×$45 Dollar sales value for January=$270,000 Dollar sales value for February=8,000×$45 Dollar sales value for February=$360,000 Dollar sales value for March=10,000×$45 Dollar sales value for March=$450,000 Dollar sales value for Quarter=24,000×$45 Dollar sales value for Quarter=$1,080,000

Conclusion

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

Requirement 2-

To determine

To prepare:

Merchandise purchases budget

Requirement 2-

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
     
     
     
     
     
     
    JanuaryFebruaryMarchQuarter
    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 Inventory Required merchandise purchases for January=2,000 units+6,000 units5,000 units Required merchandise purchases for January=3,000 units Required merchandise purchases for February=2,500 units+8,000 units2,000 units Required merchandise purchases for February =8,500units Required merchandise purchases for March=2,250 units+10,000 units2,500 units Required merchandise purchases for March=9,750units

Dollar Value of purchases is calculated as follows-

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

Conclusion

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

Requirement 3-

To determine

To prepare:

Monthly selling expense Budget

Requirement 3-

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

Sales salary for each month-

  Sales salary for each month= $90,000 12 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+$7,500 Selling Expense for January=$61,500 Selling Expense for February=$72,000+$7,500 Selling Expense for February=$79,500 Selling Expense for March=$90,000+$7,500 Selling Expense for March=$97,500

Conclusion

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

Requirement 4-

To determine

To prepare:

Monthly general and administrative expense Budget

Requirement 4-

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

    ISLE Corporation
    Monthly general and administrative budgets
     
     
     
     
     
    JanuaryFebruaryMarch
    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 year 12 monthsGeneral and administrative salaries for each month= $144,000 12 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 Expense Total General and administrative expenses for January=$12,000+$3,000Total General and administrative expenses for January=$15,000 Total General and administrative expenses for February=$12,000+$3,000 Total General and administrative expenses for February=$15,000 Total General and administrative expenses for March=$12,000+$3,000 Total 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.

Requirement 5-

To determine

To prepare:

Monthly capital expenditures Budget

Requirement 5-

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

    ISLE Corporation
    Capital Expenditures budget
     
     
     
     
     
     
    JanuaryFebruaryMarchQuarter
    Purchase of Equipment
    72,000
    96,000
    28,800
    196,800
    Purchase of Land
    0
    0
    150,000
    150,000
    Total Capital expenditure72,00096,000178,800346,800

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.

Requirement 6-

To determine

To prepare:

Monthly Cash Budget

Requirement 6-

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

    ISLE Corporation
    Monthly cash budgets
     
     
     
     
     
    JanuaryFebruaryMarch
    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 418,500619,500478,500
    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 220,500496,500504,300
    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 month Cash sales for January=25%×$270,000 Cash sales for January=$67,500 Cash sales for February=25%×$360,000 Cash sales for February=$90,000 Cash 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 purchases Accounts 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

Requirement 7-

To determine

To prepare:

Budgeted income statement

Requirement 7-

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

    ISLE Corporation
    Income Statement
     
     
     
    ParticularsAmount ($)Amount ($)
    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 Expense General 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.

Requirement 8-

To determine

To prepare:

Budgeted Balance sheet.

Requirement 8-

Expert Solution
Check Mark

Answer to Problem 8BPSB

Solution:

    ISLE Corporation
    Balance sheet as of March 31, 2016
     
     
     
    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

Assets
Given,
Land = $150,000 (from Requirement 5)
Cash = $36,000 (from Requirement 6)
Accounts receivable-
  Accounts receivable=Beginning receivables+ Credit salesCollectionsAccounts receivable=$525,000+$810,000$889,500Accounts receivable=$445,500

Inventory-
  Inventory=Beginning inventory+PurchasesCost of goods soldInventory=$150,000+$637,500$720,000Inventory=$67,500

Calculation of total current assets is as under-

   Current assets= Cash + Accounts receivable+Inventory Current assets=$36,000+$445,500+$67,500Current assets=$549,000

Accumulated Depreciation-
   Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$21,425Accumulated depreciation=$88,925

Equipment-
   Equipment =Equipment grossAccumulated Depreciation Equipment =$736,800$88,925Equipment ==$647,875

Calculation of total assets is as under-
   Total Assets=Total Current assets+Land+Equipment Total Assets=$549,000+$150,000+$647,875Total Assets=$1,346,875

Total Stockholder's Equity and Liabilities Given,
Taxes payable = 22,030 (from requirement 7)
Common stock = $472,500

Accounts payable-
  Accounts payable =Beginning payables+PurchasesPaymentsAccounts payable =$360,000+$637,500$501,000Accounts payable =$496,500

Calculation of Current liabilities is as under-

  Current liabilities=Accounts payable+Bank loan payable+Taxes payableCurrent liabilities=$496,500+$76,800+$22,030Current liabilities= $595,330

Retained earnings-
  Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$33,045Retained earnings =$279,045

Calculation of Total Stockholder's Equity and Liabilities is as under-
   Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total 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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
What is Budgeting? | Budgetary control | Advantages & Limitations of Budgeting; Author: Educationleaves;https://www.youtube.com/watch?v=INnPo0QPXf4;License: Standard youtube license