MBA 6315 Accounting For Excutive

Answer:
A relatively new company, Wine To End Whining, Inc., has determined they need to engage in a budgeting process as part of their new strategic plan. The Company has asked you to provide the following items for the months of January, February, and March of 2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income Statement; and D) a Budgeted Balance Sheet. They have provided you with the planning document below and also, with their December 31, 2016 Balance Sheet. Please complete the four items requested on Worksheet Tabs A, B, C, and D of this Workbook. Check Figures are provided for you on each Worksheet.                 
               
               
               
               
               
               
                   
WINE TO END WHINING, INC.                
PLANNING DATA FOR 2017                
                   
All Sales are on Credit                  
      Collections of Accounts Receivable:                  
Month of Service 56%                
Month following Service 44%                
                   
Actual December 2016 Sales  $  2,00,000                
Expected Sales in Dollars                  
January  $  2,20,000                
February  $  1,93,000                
March  $  1,78,000                
      April  $  2,01,000                
                   
Cost of Goods Sold as a percentage of selling price. 60%                
                   
Planned ending inventory as a percentage of next month’s required inventory. 65%                
                   
Purchases are are all on credit.                  
Purchases paid in current month 30%                
Purchases paid in next month 70%                
                   
                   
Sales commission as a percent of sales 3%                
Sales commission are paid one month after the month incurred.                  
                   
Advertising expenses have a fixed and variable portion:                  
Fixed portion $4,200                
The fixed portion of the advertising is paid in the current month.                  
Variable portion as a percentage of sales 1%                
The variable portion is paid one month after the month incurred.                  
                   
Insurance policy:                  
Months of insurance coverage paid for 12                
The policy period is from February 1 to January 31 each year                   
The premium to be paid on February 1, 2017 is $18,000                
The premium will be charged to prepaid insurance                  
                   
Selling and Administrative expenses have a fixed and variable portion:                  
Fixed portion is paid in the month incurred $29,000                
Variable portion as a percentage of sales 2%                
Variable S&A expenses are paid one month after the month incurred                  
                   
Depreciation expense per month $5,000                
                   
The annual interest rate on the long term debt is 3.5%                
Interest is incurred on the principal balance outstanding each month.                  
Interest is paid on a quarterly basis.  Interest for December to February will be paid March 1.                  
No principal payments are scheduled to be made on the long-term debt until September of 2017                  
                   
Income Tax rate  30%                
Accrued taxes are paid on the 15th of January, April, July and October                  
                   
The Company’s Board of Directors plans to declare a dividend on January 20 $12,000                
It will be paid on February 15.                  
                   
Use the information provided on the December 31, 2016 Balance Sheet shown below to help you create the budgeting documents requested.                
               
                   
WINE TO END WHINING, INC.                
BALANCE SHEET                
 December 31, 2016                
                   
ASSETS                
Current Assets                  
Cash  $  1,03,200                
Accounts Receivable          88,000                
Inventory          85,800                
Prepaid Insurance            1,500                
Total Current Assets      2,78,500                
                   
Property Plant and Equipment                  
Office Equipment      3,00,000                
Accumulated Depreciation       (60,000)                
Total Property Plant and Equipment      2,40,000                
                   
Total Assets  $  5,18,500                
                   
                   
LIABILITIES AND SHAREHOLDERS EQUITY                
LIABILITIES                
Current Liabilities                  
Accounts Payable – Purchases  $     89,460                
Sales Commission Payable            6,000                
Selling and Admin Payable            4,000                
Advertising Payable            2,000                
Interest Payable                467                
Dividends Payable                   –                  
Income Taxes Payable          14,970                
Total Current Liabilities      1,16,897                
                   
Long Term Debt      1,60,000                
                   
Total Liabilities      2,76,897                
                   
SHAREHOLDERS’ EQUITY                
Common Stock      1,24,000                
Retained Earnings      1,17,603                
                   
Total Shareholders’ Equity      2,41,603                
                   
Total Liabilities and Shareholders Equity  $  5,18,500                
                   
                   
                   
Based on the information available to you, complete the Purchases Budget worksheet below:                   
Check figures are: January Budgeted Purchase for Next Month Sales = $121,470; March Inventory Needed to be Available during Current Month = $185,190.    
   
                   
WINE TO END WHINING, INC.    
PURCHASES BUDGET     
PLANNING FOR 2017    
                   
Solution: Actual   Budgeted   Budgeted   Budgeted    
   Dec 2016   January   February   March    
Desired Ending Inventory Balance for Current Month  $     85,800    $         75,270    $     69,420    $     78,390    
Current Month’s Cost of Sales      1,20,000            1,32,000        1,15,800        1,06,800    
Inventory Needed to be Available during Current Month      2,05,800                      –            2,07,270                      –        1,85,220                        –        1,85,190    
Less: Beginning Inventory of Current Month          78,000               85,800            75,270            69,420    
Budgeted Purchase for Next Month Sales  $  1,27,800  $                 –    $     1,21,470  $                 –    $  1,09,950  $                    –    $  1,15,770    
                   
                   
                   
Based on the information available to you, complete the Cash Budget worksheet below:                   
Check figures are: January Cash Receipts = $211,200; February Cash Disbursements = $194,414; March Ending Cash Balance = $165,519.        
       
                   
Solution:                  
WINE TO END WHINING, INC.        
PLANNED CASH TRANSACTIONS and CASH BUDGET        
For the Month Ending,        
                   
   Jan 31, 2017    Feb 28, 2017    Mar 31, 2017        
CASH IN                   
56% This Month’s Sales  $  1,23,200    $     1,08,080    $     99,680        
44% of Last Month’s Sales          88,000               96,800            84,920        
                   
Total Cash Receipts  $  2,11,200  $                 –    $     2,04,880  $                 –    $  1,84,600        
                   
CASH OUT                  
70% Last Month’s Purchases          89,460               85,029            76,965        
30% This Month’s Purchases          36,441                        –             32,985                        –          34,731        
Commissions            6,000                  6,600              5,790        
Advertising $6,200                  6,400              6,130        
Selling & Admin. $33,000               33,400            32,860        
Insurance     18,000            
Interest                    1,400        
Dividends     12,000            
Income Tax          14,970                
                   
Total Cash Disbursements  $  1,86,071  $                 –    $     1,94,414  $                 –    $  1,57,876        
                   
CASH BUDGET                  
Beginning Balance of Cash  $  1,03,200    $     1,28,329    $  1,38,795        
                   
Cash Receipts      2,11,200            2,04,880                        –      1,84,600        
                   
Cash Available      3,14,400            3,33,209                        –      3,23,395        
                   
Cash Disbursements      1,86,071            1,94,414                      –        1,57,876        
                   
Ending Cash Balance  $  1,28,329    $     1,38,795  $                 –    $  1,65,519        
                   
                   
                   
Based on the information available to you, complete the Budgeted Income Statement worksheet below:       
     
Check figures are: January Budgeted Gross Margin = $88,000; February Budgeted Operating Income = $25,920; March Budgeted Net Income = $14,247.      
     
                   
Solution:                  
WINE TO END WHINING, INC.      
BUDGETED INCOME STATEMENTS      
For the Month Ending,      
                   
     Jan 31, 2017    Feb 28,2017    Mar 31, 2017       
Sales    $    2,20,000    $    1,93,000    $       1,78,000      
Cost of Sales           1,32,000           1,15,800             1,06,800      
Gross Margin              88,000              77,200                    –                71,200      
                   
Other Operating Expenses                  
Commission Expense                 6,600                 5,790                   5,340      
Advertising Expense                 6,400                 6,130                   5,980      
Insurance Expense                 1,500                 1,500                   1,500      
Selling & Admin. Expense              33,400              32,860                 32,560      
Depreciation Expense                 5,000                 5,000                   5,000      
Total Other Operating Expenses              52,900              51,280                    –                50,380      
                   
Operating Income              35,100              25,920                    –                20,820      
                   
Other Income (Expense)                  
Interest Expense                    467                    467                       467      
                   
Income Before Income Tax              34,633              25,453                    –                20,353      
                   
Income Tax Expense              10,390                 7,636                   6,106      
                   
Net Income    $        24,243    $        17,817    $           14,247      
                   
                   
Based on the information available to you, complete the Budgeted Balance Sheet worksheet below:                  
Check figures are: January Total Assets = $535,399; February Total Liabilities = $267,971; March Total Current Assets = $337,229.
                   
                   
Solution:                  
WINE TO END WHINING, INC.
BUDGETED BALANCE SHEETS
                   
ASSETS
       Dec 31, 2016     Jan 31, 2017    Feb 28,2017    Mar 31, 2017 
Current Assets                  
  Cash    $     1,03,200    $  1,28,329    $  1,38,795    $       1,65,519
  Accounts Receivable             88,000            96,800            84,920                 78,320
  Inventory               85,800            75,270            69,420                 78,390
  Prepaid Insurance                1,500                      –             16,500                 15,000
                   
Total Current Assets              2,78,500        3,00,399                         –       3,09,635                 –            3,37,229
                   
Property Plant and Equipment                  
  Office Equipment          3,00,000        3,00,000        3,00,000             3,00,000
  Accumulated Depreciation           (60,000)         (65,000)         (70,000)      (5,000)             (75,000)
Total Property Plant and Equipment              2,40,000        2,35,000        2,30,000      (5,000)           2,25,000
                   
Total Assets      $     5,18,500    $  5,35,399  $                    –    $  5,39,635  $  (5,000)  $       5,62,229
                   
LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES                
Current Liabilities                  
  Accounts Payable – Purchases  $         89,460            85,029            76,965                 –                81,039
  Sales Commission Payable                6,000              6,600              5,790                 –                  5,340
  Selling and Admin Payable                4,000              4,400              3,860                 –                  3,560
  Advertising Payable                2,000              2,200              1,930                 –                  1,780
  Interest Payable                   467                  934              1,400                       467
  Dividends Payable                       –              12,000                      –                            – 
  Income Taxes Payable             14,970            10,390            18,026                 24,132
                   
Total Current Liabilities              1,16,897        1,21,553                        –        1,07,971                –             1,16,318
                   
Long Term Debt              1,60,000        1,60,000        1,60,000                 –            1,60,000
                   
Total Liabilities              2,76,897        2,81,553                        –        2,67,971                –             2,76,318
                   
SHAREHOLDERS’ EQUITY                
  Common Stock          1,24,000        1,24,000        1,24,000                 –            1,24,000
  Retained Earnings          1,17,603        1,29,846        1,47,664             1,61,911
                   
Total Shareholders’ Equity              2,41,603        2,53,846                         –       2,71,664                 –            2,85,911
                   
Total Liabilities and Shareholders Equity      $     5,18,500    $  5,35,399  $                    –    $  5,39,635  $           –    $       5,62,229

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