Fundamental Assignment Material Special note: Problems 7-A1 and 7-B1 provide single-problem reviews of most of the chapter topics. Those readers who prefer to concentrate on the fundamentals in smaller chunks should consider any of the other problems. 7-AI Prepare Master Budget You are the new manager of the Rapidbuy Electronics store in the Mall of America. Top management of Rapidbuy Electronics is convinced that management training should include the active participa- tion of store managers in the budgeting process. You have been asked to prepare a complete master budget for your store for June, July, and August. All accounting is done centrally so you have no expert help on the premises. In addition, tomorrow the branch manager and the assistant controller will be here to examine your work; at that time, they will assist you in formulating the final budget document. The idea is to have you prepare the initial budget on your own so that you gain more con- fidence about accounting matters. You want to make a favorable impression on your superiors, so you gather the data at the top of the next page as of May 31, 20X8: Credit sales are 90% of total sales. Eighty percent of each credit account is collected in the month following the sale and 20% is collected in the subsequent month. Assume that bad debts are negligi- ble and can be ignored. The accounts receivable on May 31 are the result of the credit sales for April and May: (.20 .90 X $60,000) + (1.0 x.90 $70,000) $73,800. BUDGETS AND PREPARING THE MASTER BUDGET 5800 R Aecent and Projected Sales s 60000 70.000 140.000 80.000 80,000 60.000 Cash 86.800 Apri 73,800 May 3300 une Accounts receivable Net furniture and fixtures Total assets 97.800 August 102.200 September $200,000 Accounts payable owners' equity Toal liabilities and owners' equities ,verage gross profit on sales is 38% The The policy is to acquire enough inventory each month to equal the following month's projected . cst of g Salanes, wages, and commissions average 20% of sales; all other van ahle expenses are 4% of sales. Fixed expenses for rent , property taxes, and miscellaneous payroll and other items are S nthly. Assume that these variable and fixed expenses require cash disbursements each month. Depreciation is $500 monthly tures in May. The May 31 halance of accounts payable includes this amount. Assume that a minimum cash halance of $5,000 is to be maintained. Also assume that all borrow- ings are effective at the heginning of the month and all repayments are made at the end of the month of repayment. Interest is compounded and added to the outstanding balance each month, but interest is paid only at the ends of months when principal is repaid The interest rate is 10% per year; round interest computations and interest payments to the nearest dollar. Interest payments may be any dollar amount, but all borrowing and repayments of principal are made in multiples of $1,000. 1. Prepare a budgeted income statement for the coming June-August quarter, a cash budget (for each of the next 3 months), and a budgeted balance sheet for August 31, 20x8. All operations are evaluated on a before-income-tax basis, so income taxes may be ignored here. 2. Explain why there is a need for a bank loan and what operating sources supply cash for repaying the bank loan