Selling general and administrative expenses are expected to

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Reference no: EM13482513

The Schrödinger Science Store operates a retail store in a local shopping mall.The results of operations for the fourth quarter of 2014 are as follows:

Sales $350,000

Less cost of sales $205,000

Gross margin $145,000

Less selling,general,and administrative expenses $50,000

Income before taxes $95,000

Less income taxes $38,000

Net income $57,000

Additional information:

1. Sales and cost of sales are expected to increase by 10 percent, are expected to increase by 12% in each of the next two quarters.

2. 75 percent of sales are collected in the quarter of sale, and 25 percent are collected in the quarter following sale.

3. The balance in accounts receivable at the end of 2014 relates to sales in the fourth quarter of 2014.

4. Inventory purchases in the fourth quarter of 2014 are $200,000.

5. The balance in accounts payable at the end of 2014 relates to purchases in the fourth quarter of 2014.

6. Inventory at the end of 2014 is $150,000. For 2015, the company plans to hold ending inventory equal to 65 percent of subsequent quarter cost of sales.

7. Selling, general, and administrative expenses are expected to increase by $8,000 due to increases in advertising and salaries. All other expenses in this category are expected to remain constant.

8. 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.

9. Selling, general, and administrative expense includes $2,500 of depreciation related to furniture and fixtures with a book value (net of accumulated depreciation) of $50,000 at the end of 2014.

10. The tax rate is expected to remain at 40 percent.

11. The cash balance at the end of 2014 is $40,000.

12. Common stock at the end of 2014 is $80,000 and retained earnings is $147,500.

13. 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.

Question:

1. Prepare a cash budget for the first quarter of 2015.

Reference no: EM13482513

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