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Cash budget/Income Statement/Balance Sheet

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Techlabs operates a computer training center.The following data relate to the preparation of a master budget for January 2012.

1. At the end of 2011, the company's general ledger indicated the following balances:
Debits Credits
Cash $ 50,000 Accounts Payable $ 40,000
Accounts receivable 40,000 Note payable 60,000
Equipment (net) 120,000 Common stock 30,000
Retained earnings 80,000
Total $210,000 $210,000

2. Tuition revenue in December 2011 was $80,000, and tuition revenue budgeted for January 2012 is $90,000.

3. Fifty percent of tuition revenue is collected in the month earned, and 50 percent is collected in the subsequent month.The receivable balance at the end of 2012 reflects
tuition earned in December 2012.

4. Monthly expenses (excluding interest expense) are budgeted as follows: salaries, $40,000; rent, $5,000; depreciation on equipment, $7,000; utilities, $800; other, $2,000.

5. Expenses are paid in the month incurred. Purchases of equipment are paid in the month after purchase.The $40,000 payable at the end of 2011 represents money owed for the purchase of computer equipment in December 2011.

6. The company intends to purchase $30,000 of computer equipment in January 2012.The anticipated $7,000 per month of depreciation (see number 4) reflects the addition of $1,000 of monthly depreciation related to this purchase.

7. The note is at 10 percent per annum and requires monthly interest payments of $500. The payments are made on the 20th of each month.The principal must be paid in February of 2013.

8. The tax rate is 35 percent.

Complete the following budgets:

a. Cash Budget
For January 2012
Cash receipts
Collection of December 2011 tuition $
Collection of January 2012 tuition
Total cash receipts
Cash disbursements
Payment of salaries
Payment of rent
Payment of utilities
Payment of other expenses
Payment for purchases of computer equipment
Payment of interest on note
Payment of taxes
Total disbursements
Plus beginning cash balance
Ending cash balance $
Copyright © 2010 John Wiley & Sons

b. Budget Income Statement
For January 2012
Tuition revenue $
Interest expense
Total expense
Income before taxes
Taxes on income
Net income $

c. Budgeted Balance Sheet
As of January 30, 2012
Cash $
Accounts receivable
Equipment (net)
Total assets $
Accounts payable $
Note payable
Total liabilities $
Stockholders' equity
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity $

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Solution Summary

The solution explains how to complete the cash budget, prepare income statement and balance sheet

See Also This Related BrainMass Solution

Preparing a Master Budget Including Income Statement, Balance Sheet etc.

Victoria Kite Company, a small Melbourne Firm that sells kites in the web wants a master budget for the next three months, beginning January 1, 2005. It desires an ending minimum cash balance of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. In January Victoria Kite is beginning just in time (JIT) deliveries from suppliers, which means that purchases equal expected sales.

On Jan.1 purchases will cease until inventory reaches $6,000 after which time purchases will equal sales. Merchandise cost average $4 per kite. Purchases during any given month are paid in full during the following month. All sales on credit, payable within 30 days, but experience has shown that 60% of current sales are collected in the current month, 30% in the next month and 10% in the month thereafter. Bad debts are negligible.

Monthly operating expenses are as follows:

Wages and salary: $15,000
Insurance expired: $125
Depreciation: $250
Masc.: $2,500
Rent: $250/month + 10% of quarterly sales over $10,000

Cash dividends of $1,500 are to be paid quarterly, starting Jan 15, and are declared on the fifteenth of the previous month. All operating expenses are to be paid as incurred, except insurance, depreciation and rent. Rent of $250 is to be paid each month, and the additional 10% of sales is paid quarterly on the tenth of the moth following the wnd of the quarter. The next settlement is due Jan. 10
The company plans to buy some new fixtures for $3000 cash in March.

Money can be borrowed and repaid in multiples of $500 at an interest rate of 10% per annum. Management wants to minimize borrowing and repay rapidly Interest is computed and paid when the principle is repaid. Assume that the borrowing occurs at the beginning and the repayments at the end of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.

assets as of December 31,2004 liabilities as of December 31, 2004

cash $5000 accts payable (merchandise) $35,000
accts receivable 12,500 dividends payable 1,500
inventory* 39,050 rent payable 7,800
unexpired insurance 1,500
fixed assets, net 12,500

total $70,550 $44,850

*November 30 inventory balance=$16,000

Recent and forcasted sales

October $38,000
November $25,000
December $25,000
January $62,000
Feb $75,000
Mar. $38,000
Apr. $45,000

1. Prepare a master budget including a budget income statement, balance sheet, statement of cash receipts and disbursements, and supporting schedules for the nights of Jan - March 2005.
2. Explain why there is need for a bank loan and what operating sources provide the cash for the repayment of the bank loan.

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