The following data relate to the operations of Milley Corporation, and wholesale distributor of durable hats...

 

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The following data relate to the operations of Milley Corporation, and wholesale distributor of durable hats with hidden pockets that are popular for adventure travel. The hats are sold in travel boutiques and department stores nationwide. Current assets as of December 31: Cash $6,000 Accounts Receivable Inventory Buildings and Equipment, net Accounts Payable 36,000 9,800 110,885 32,550 Common Shares 100,000 Retained Earnings 30,135 a. The gross margin in 30% of sales. b. Actual and budgeted sales data are as follows: December (actual) $60,000 January February March 70,000 80,000 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 the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rates on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required part a): 1. Using the data above, complete the following schedules using excel: Schedule of Expected Cash Collections February March Quarter Cash Sales $28,000 Credit Sales 36,000 Total Collections $64,000 Merchandise Purchases Budget January $49,000 11,200 $60,200 February March Quarter Budgeted Cost of Goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases * $70,000 sales*70%=$49,000 $80,000*70%*20%-$11,200 9,800 50,400 Schedule of Expected Cash Disbursements: Merchandise Purchases January $32,550 February March Quarter December Purchases $32,550 50,400 January Purchases 12,600 $37,800 February Purchases March Purchases Total Disbursements $45,150 * Beginning balance of accounts payable Schedule of Expected Cash Disbursements: Selling and Administrative Expenses January $12,000 February March Quarter Commissions Rent 1,800 5,600 $19,400 Other Expenses Total Disbursements Cash Budget February March January $6,000 Quarter Cash balance, beginning Add cash collections 64,000 70,000 45,150 19,400 Total cash available For inventory For operating expenses For equipment Total cash disbursements 3,000 67,550 $2,450 Excess (deficiency) of cash Financing: Etc. 2. Prepare an absorption costing income statement for the quarter ended March 31. 3. Prepare a balance sheet as at March 31. Required part b): 1) Imagine the COVID-19 pandemic had started in December (the month preceding the schedules you completed in part a) 2018. Milley Manufacturing now estimates that sales (in units and dollars) will be 40% less than originally anticipated for January, February and March and hopes that normal operations will resume in April and May. As a result, the company should qualify for the Canada Emergency Wage Subsidy (Claim Period 2 which reimbursed the company for 75% of its wages as long as payments to employees were not reduced and revenues declined at least 30%. Recalculate the budgets and statements from parts 1 and 2, identifying the assumptions you must make. Enter your schedules in a separate Excel worksheet in the same file as your part a). The following data relate to the operations of Milley Corporation, and wholesale distributor of durable hats with hidden pockets that are popular for adventure travel. The hats are sold in travel boutiques and department stores nationwide. Current assets as of December 31: Cash $6,000 Accounts Receivable Inventory Buildings and Equipment, net Accounts Payable 36,000 9,800 110,885 32,550 Common Shares 100,000 Retained Earnings 30,135 a. The gross margin in 30% of sales. b. Actual and budgeted sales data are as follows: December (actual) $60,000 January February March 70,000 80,000 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 the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rates on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required part a): 1. Using the data above, complete the following schedules using excel: Schedule of Expected Cash Collections February March Quarter Cash Sales $28,000 Credit Sales 36,000 Total Collections $64,000 Merchandise Purchases Budget January $49,000 11,200 $60,200 February March Quarter Budgeted Cost of Goods sold Add desired ending inventory Total needs Less beginning inventory Required purchases * $70,000 sales*70%=$49,000 $80,000*70%*20%-$11,200 9,800 50,400 Schedule of Expected Cash Disbursements: Merchandise Purchases January $32,550 February March Quarter December Purchases $32,550 50,400 January Purchases 12,600 $37,800 February Purchases March Purchases Total Disbursements $45,150 * Beginning balance of accounts payable Schedule of Expected Cash Disbursements: Selling and Administrative Expenses January $12,000 February March Quarter Commissions Rent 1,800 5,600 $19,400 Other Expenses Total Disbursements Cash Budget February March January $6,000 Quarter Cash balance, beginning Add cash collections 64,000 70,000 45,150 19,400 Total cash available For inventory For operating expenses For equipment Total cash disbursements 3,000 67,550 $2,450 Excess (deficiency) of cash Financing: Etc. 2. Prepare an absorption costing income statement for the quarter ended March 31. 3. Prepare a balance sheet as at March 31. Required part b): 1) Imagine the COVID-19 pandemic had started in December (the month preceding the schedules you completed in part a) 2018. Milley Manufacturing now estimates that sales (in units and dollars) will be 40% less than originally anticipated for January, February and March and hopes that normal operations will resume in April and May. As a result, the company should qualify for the Canada Emergency Wage Subsidy (Claim Period 2 which reimbursed the company for 75% of its wages as long as payments to employees were not reduced and revenues declined at least 30%. Recalculate the budgets and statements from parts 1 and 2, identifying the assumptions you must make. Enter your schedules in a separate Excel worksheet in the same file as your part a).

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X Sales 60000 70000 80000 85000 55000 AA40 Cash Sales 24000 28000 32000 34000 22000 BA60 Credit Sale... View the full answer