ACC Problem 2 - Peyton Department Store

Problem 2- Developing a Master Budget for a Merchandising Organization
Peyton Department Store prepares budgets quarterly. The following information is
available for use in planning the second quarter budgets for 2014.
Peyton Department Store
Balance Sheet
March 31,2014
Assets

Liabilities and

Stockholders Equity
Cash..$3,000

Accounts

payable..$26,000
Accounts receivable..25,000

Dividends

payable..17,000
Inventory..30,000

Rent

payable.2,000
Prepaid insurance2,000

Stockholders

equity..40,000
Fixtures..25,000
Total Assets.$85,000
equity$85,000

Total liabilities and

Actual and forecasted sales for selected months in 2014 are as follows:
Month
Sales Revenue
January
. $60,000
February
...50,000
March
..40,000
April
50,000
May
.60,000
June
70,000

July
90,000
August
.80,000
Monthly operating expenses are as follows:
Wages and
salaries
..$25,000
Depreciation
100
Utilities
1000
Rent
2,000
Cash dividends of $17,000 are declared during the third month of each quarter and are
paid during the first month of the following quarter. Operating expenses, except
insurance, rent and depreciation are paid as incurred. Rent is paid during the following
month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50
percent of sales. Ending inventories are sufficient for 120 percent of the next months
sales. Purchases during any given month are paid in full during the following month. All
sales are on account, with 50 percent collected during the month of sale, 40 percent
during the next month, and 10 percent during the month thereafter. Money can be
borrowed and repaid in multiples of $1000 at an interest rate of 12 percent per year. The

company desires a minimum cash balance of $3000 on the first of each month. At the
time the principal is repaid, interest is paid on the portion of principal that is repaid. All
borrowing is at the beginning of the month, and as repayment is at the end of the month.
Money is never repaid at the end of the month it is borrowed.
Required
a. Prepare a purchases budget for each month of the second quarter ending June 30,
2014.
b. Prepare a cash receipts schedule for each month of the second quarter ending June
30, 2014. Do not include borrowings.
c. Prepare a cash disbursements schedules for each month of the second quarter
ending June 30, 2014. Do not include repayments of borrowings.
d. Prepare a cash budget for each month of the second quarter ending June 30, 2014.
Include budgeted borrowings and repayments.
e. Prepare an income statement for each month of the second quarter ending June 30,
2014.
f.

Prepare a budgeted balance sheet as of June 2014.