| 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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