Peyton Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2010.
PEYTON DEPARTMENT STORE Balance Sheet March 31, 2010
Assets Liabilities and Stockholders’ Equity
Cash $2,000 Accounts payable $26,000
Accounts receivable 25,000 Dividends payable 17,000
Inventory 30,000 Rent payable 1,000
Prepaid Insurance 2,000 Stockholders’ equity 40,000
Fixtures 25,000 Total assets $84,000
Total liabilities and equity $84,000
Actual and forecasted sales for selected months in 2010 are as follows:
Month Sales Revenue
Monthly operating expenses are as follows:
Wages and salaries $27,000
Cash dividends of $17,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month’s sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $3,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.
a. Prepare a purchases budget for each month of the second quarter ending June 30, 2010.
b. Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2010. Do not include borrowings.
c. Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2010. Do not include repayments of borrowings.
d. Prepare a cash budget for each month of the second quarter ending June 30, 2010. Include budgeted borrowings and repayments.