Question

The following data relate to the operations of Lim Corporation, a wholesale distributor of consumer goods:
Current assets as of December 31:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,800
Buildings and equipment, net. . . . . . . . . . . . . . . . . . . . . . 110,885
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,550
Common shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,135
a. The gross margin is 30% of sales.
b. Actual and budgeted sales data are as follows:
December (actual). . . . . . . . . . . . . . . . . . . . . . $60,000
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
February. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
March. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.
d. Each month’s ending inventory should equal 20% of the following month’s budgeted cost of goods sold.
e. One-quarter of a month’s inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.
f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.
g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.
h. Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows it to borrow up to a total loan balance of $50,000. The interest rate on these loans is 0.5% per month, and interest payments must be made at the end of each month. Assume all borrowing occurs at the beginning of a month. The company will, as far as it is able, repay outstanding loans at the end of each month.
Required:
Using the data above, complete the following:
1. Schedule of expected cash collections:
2. Merchandise purchases budget:
Schedule of expected cash disbursements—Merchandise purchases:
3. Schedule of expected cash disbursements—Selling and administrative expenses:
4. Cash budget:
5. Prepare an absorption costing income statement, similar to the one shown in Schedule 9, for the quarter ended March 31.
6. Prepare a balance sheet as of March 31.


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  • CreatedJuly 08, 2015
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