Question

Exercise 4) Carly's Critters Company operates a gift shop at the local 200. The results of operations for the first quarter of 2020 are as follows: $125,000 Sales Cost of Goods Sold (S68.750) S56,250 Gross Margin Selling & Administrative Expenses dministrative Expenses ($12.750) $43.500 Operating Income Income Taxes ($13.920) Net Income $29.580 Additional Information: 1. Assel accounts are cash, accounts receivable; inventory, and equipment (net). Accounts payable is the only liability account. Owner's equity accounts are common stock and retained earnings. 2. Fifty-five percent of inventory purchases are paid in the quarter of purchase and 45 percentare paid in the following quarter. All other expenses, including taxes, are paid in the quarter incurred 3. The cash balance at the end of quarter one is $8.888 4. Sales and cost of goods sold are expected to decrease by 12 percent in each of the next three quarters of the year. 5. Selling & Administrative expenses are expected to increase by $4.675 due to increases in advertising and salaries. All other expenses in this category are expected to remain constant. 6. The balance in accounts receivable at the end of quarter one relates to sales made during the first quarter of 2020. 7. Dividends of $905 are paid out during each quarter. 8. Inventory purchases in the first quarter of 2020 are $44,440. 9. The balance in accounts payable at the end of quarter one relates to purchases made during the first quarter of 2020. 10. Selling & Administrative expense includes $985 of quarterly depreciation related to equipment. The equipment had a book value of $17.825 at the end of quarter one. 11. Inventory at the end of the first quarter is $64.670. The company plans on holding ending inventory equal to 75 percent of subsequent quarter cost of goods. 12. Sixty-five percent of sales are collected in the quarter of sale and 35 percent are collected in the quarter following the sale. 13. Common stock at the end of quarter one is $80,568 and retained earnings is $34.567. 14. The tax rate is expected to remain at 32 percent. Required A. Prepare a budgeted income statement for the second quarter of 2020. B. Prepare a cash receipts & disbursements budget for the second quarter of 2020. C. Prepare a budgeted balance sheet as of the end of the second quarter of 2020. D. The company is discussing the possibility of opening a new store at a new zoo right at the beginning of the third quarter. This store would require cash payments of $15,000. Assuming the company wants a minimum cash balance of $40.000 at the beginning of the third quarter, can a new store be opened without obtaining additional funds? How much will they have to borrow or have left over?

Answer 1

Answer with working is given below

Carly's Critters Company Balance Sheet for the First Quarter, 2020 Cash $8,888 Accounts Receivable $43,750 Inventory $64,670 Equipment $17,825 Total Assets $135,133 Accounts Payable Common Stock Retained Earnings Liabilities and Shareholders Equity $19,998 $80,568 $34,567 $135,133 Quarter 3 $96,800 $53,240 $43,560 Budgeted Income Statement for 2020 Sales Cost of Goods Sold Gross profit Selling and administrative expenses Operating Income tax at 32% Net profit Quarter 2 | $110,000 $60,500 $49,500 $17,425 $32,0751 $10,264 $21,811 Sales Payment in Quarter-65% Payment after Quarter-35% $110,000 $71,500 $38,500 Closing balance of Accounts Receivable Purchase Budget Cost of Goods Sold Add: Closing stock-75% of next Quarter COGS $60,500 $39,930 $100,430 $64,670 $35,760 Less: Opening stock Purchase Budget Payment of Purchases Payment in Quarter-55% Payment after Quarter-45% $19,668 $16,092 Closing balance of Accounts Payable B. Cash Budget Opening balance Opening balance of Accounts receivable Cash collection during the quarter $8,888 $43,750 $71,500 $124,138 Payments Cash payment to vendors during the quarter Opening balance of Accounts Payable Selling and administration expense Dividend Tax paid Total cash payments $19,668 $19,998 $16,440 $905 $10,264 $67,275 Closing balance $56,863 Carly's Critters Company Balance Sheet for the Second Quarter, 2020 Current Assets Cash $56,863 Accounts Receivable $38,500 Inventory $39,930 Fixed Assets Equipment less Depreciation Total Assets $16,840 $152,133 Current liabilities Accounts Payable $16,092 Shareholders' Equity Common Stock Retained Earnings- As per WN below Liabilities and Shareholders Equity $80,568 $55,473 $152,133 Retained Earnings- Closing balance Opening balance Net profit Less: Dividends Closing balance Retained Earnings $34,567 $21,811 -$905 $55,473 D. Third Quarter Opening balance of cash Minimum balance needed Cash leftover $56,863 $40,000 $16,863 New store cash needed Cash Balance leftover after stores $15,000 $1,863 Yes new store can be opened without obtaining additional funds