Question: The following information is for the Newport Stationery Store Balance Sheet

The following information is for the Newport Stationery Store.
Balance Sheet Information as of September 30
Current assets:
Cash ................... $ 14,400
Accounts receivable ............. 12,000
Inventory ................. 76,320
Equipment, net .............. 120,000
Liabilities ................ None
Recent and Anticipated Sales
September ............... $48,000
October ................ 57,600
November ............... 72,000
December ............... 96,000
January ................ 43,200
• Credit sales. Sales are 75% for cash and 25% on credit. Assume that credit accounts are all collected in the month following the sale. The accounts receivable on September 30 are the result of the credit sales for September (25% of $48,000). Gross margin averages 30% of sales. Newport treats cash discounts on purchases in the income statement as “other income.”
• Operating costs. Salaries and wages average 15% of monthly sales; rent, 5%; other operating costs, excluding amortization, 4%. Assume that these costs are disbursed each month. Amortization is $1,200 per month.
• Purchases. Newport keeps a minimum inventory of $36,000. The policy is to purchase additional inventory each month in the amount necessary to provide for the following month’s sales. Terms on purchases are 2/10, n/30: a 2% discount is available if the payment is made within ten days after purchase; no discount is available if payment is made beyond ten days after purchase; and the full amount is due within thirty days. Assume that payments are made in the month of purchase and that all discounts are taken.
• Light fixtures. The expenditures for light fixtures are $720 in October and $480 in November. These amounts are to be capitalized.
Assume that a minimum cash balance of $9,600 must be maintained. Assume also that all borrowing is effective at the beginning of the month and all repayments are made at the end of the month of repayment. Loans are repaid when sufficient cash is available. Interest is paid only at the time of repaying principal. The interest rate is 18% per year. Management does not want to borrow any more cash than is necessary and wants to repay as soon as cash is available.
Schedule E
Budgeted Cash Receipts and Disbursements
1. Based on the preceding facts, complete schedule A.
2. Complete schedule B. Note that purchases are 70% of next month’s sales.
3. Complete schedule C.
4. Complete schedule D.
5. Complete schedule E.
6. Complete schedule F. (Assume that borrowings must be made in multiples of $1,000.)
7. What do you think is the most logical type of loan needed by Newport? Explain your reasoning.
8. Prepare a budgeted income statement for the fourth quarter and a budgeted balance sheet as of December 31. Ignore income taxes.
9. Some simplifications have been introduced in this problem. What complicating factors would be met in a typical business situation?

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