PROBLEM 7-22BCompleting a Master Budget(LO2, LO4, LO7, L08, LO9, LO10)CHECK FIGURE(2a) February purc

PROBLEM 7-22BCompleting a Master Budget(LO2, LO4, LO7, L08, LO9, LO10)CHECK FIGURE(2a) February purchases: $254,800(4) February ending cash balance: $30,400Spektra Company, a home furnishings store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:Debits CreditsCash $ 31,000 Accounts Receivable 135,000 Inventory 161,700 Building and Equipment (net) 160,000 Accounts Payable $178,000Capital Stock 65,000Retained Earnings 0 244,700$487,700 $487,700b. Actual sales for December and budgeted sales for the next four months are as follows:December (actual) $300,000January $330,000February $350,000March $370,000April $360,000c. Sales are 55% for cash and 45% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.d. The company’s gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)e. Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $15,000 per month; shipping, 4% of sales; other expense, 8% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $24,000.Each month’s ending inventory should equal 70% of the following month’s cost of goods sold.g. 25% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month.h. During February, the company will purchase land for $22,000 cash. During March, land will be purchased for cash at a cost of $2,000.i. During January, the company will declare and pay $30,000 in cash dividends.j. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total of $40,000. The interest rate on these loans is 1% per month and for simplicity we will assume the interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.Required:Using the data above, complete the following statements and schedules for the first quarter:1. Schedule of expected cash collections:January February March QuarterCash sales $ 181,500 Credit sales 135,000 Total cash collections $ 316,500 2. a. Inventory purchases budget:January February March QuarterBudgeted cost of goods sold $231,000 * $245,000 Add desired ending inventory 171,500 † Total needs 402,500 Less beginning inventory 161,700 Required purchases $240,800 * $330,000 sales × 70% cost ratio = $231,000†$245,000 × 70% = $171,500b. Schedule of expected cash disbursements for merchandise purchases:January February March QuarterDecember purchases $178,000 $178,000January purchases 60,200 $180,600 240,800February purchases March purchases Total cash disbursements for purchases $238,200 3. Schedule of expected cash disbursements for selling and administrative expenses:January February March QuarterSalaries and wages $18,000 Advertising 15,000 Shipping 13,200 Other expenses 26,400 Total cash disbursements for selling and administrative expenses $72,600 4. Cash budget:January February March QuarterCash balance, beginning $ 31,000 Add cash collections 316,500 Total cash available 347,500 Less cash disbursements: Purchases of inventory 238,200 Selling and administrative expenses 72,600 Purchases of land 0 Cash dividends 30,000 Total cash disbursements 340,800 Excess (deficiency) of cash 6,700 Financing: Etc. 5. Prepare an absorption costing income statement for the quarter ending March 31 as shown in Schedule 9 in the chapter.6. Prepare a balance sheet as of March 31.

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