Reference no: EM13753290

Task:  Master Budget Problem

The Schrödinger Science Store operates a retail store in a local shopping mall. The results of operations for the fourth quarter of the past year are as follows:

Sales and cost of sales are expected to increase by 15 percent in each of the next two quarters.

Seventy percent of sales are collected in the quarter of sale, and 25 percent are collected in the quarter following sale.

The balance in accounts receivable at the end of the past year relates to sales in the fourth quarter of the past year.

Inventory purchases in the fourth quarter of the past year are $200,000.

The balance in accounts payable at the end of the past year relates to purchases in the fourth quarter of the past year.

Inventory at the end of the past year is $150,000. The company plans to hold ending inventory equal to 70 percent of subsequent quarter cost of sales.

Selling, general, and administrative expenses are expected to increase by $10,000 owing to increases in advertising and salaries. All other expenses in this category are expected to remain constant.

Fifty percent of inventory purchases are paid in the quarter of purchase, and 50 percent are paid in the following quarter. All other expenses, including taxes, are paid in the quarter incurred.

Selling, general, and administrative expense includes $2,000 of depreciation related to furniture and fixtures with a book value (net of accumulated depreciation) of $50,000 at the end of the past year.

The tax rate is expected to remain at 40 percent.

The cash balance at the end of the past year is $30,000.

Common stock at the end of the past year is $80,000 and retained earnings are $137,500.

Asset accounts are cash, accounts receivable, inventory, and furniture and fixtures. The only liability account is accounts payable. Owner’s equity accounts are common stock and retained earnings.

Based on this information, perform the following tasks:

1. Prepare a budgeted income statement for the first quarter of the next year.

2. Prepare a cash budget for the first quarter of the next year.

3. Prepare a budgeted balance sheet as of the end of the first quarter of the next year.

4. The company is discussing the possibility of opening a new store late in the first quarter of the next year. A store opening would require cash payments of $50,000. Assuming the company wants a minimum cash balance of $30,000 at the end of the first quarter; can a new store be opened without obtaining additional funds?