DETERMINACIÓN DE LAS SANCIONES Artículo 72

Wimerick Corporation prepares annual budgets by quarters. The company's post-closing trial balance as of 2010 December 31, is as follows:

Debits Credits

Cash $138,000

Accounts receivable 360,000

Allowance for uncollectible accounts $ 12,000

Inventories 156,000

Prepaid expenses 12,000

Furniture and equipment 180,000

Accumulated depreciation – Furniture and

equipment 12,000

Accounts payable 120,000

Accrued liabilities payable 36,000

Notes payable, 5% (due 2008) 480,000

Capital stock 300,000

Retained earnings (deficit) 114,000

$960,000 $960,000

All of the capital stock of the company was recently acquired by Juan Jackson. After the purchase, Jackson loaned substantial sums of money to the corporation, which still owes him USD 480,000 on a 5 per cent note. There are no accrued federal income taxes payable, but future earnings will be subject to income taxation.

Jackson is anxious to withdraw USD 120,000 from the corporation (as a payment on the note payable to him) but will not do so if it reduces the corporation's cash balance below USD 120,000. Thus, he is quite interested in the budgets for the quarter ending 2011 March 31.

Sales for the coming quarter ending 2011 March 31, are forecasted at USD 1,200,000; for the following quarter they are forecasted at USD 1,500,000. All sales are priced to yield a gross margin of

40 per cent. Inventory is to be maintained on hand at the end of any quarter in an amount equal to 20 per cent of the goods to be sold in the next quarter. All sales are on account, and 95 per cent of the 2010 December 31, receivables plus 70 per cent of the current quarter's sales will be collected during the quarter ending 2011 March 31.

Selling expenses are budgeted at USD 48,000 plus 6 per cent of sales; USD 24,000 will be incurred on account, USD 66,000 accrued, USD 27,000 from expiration of prepaid rent and prepaid insurance, and USD 3,000 from allocated depreciation.

Purchasing expenses are budgeted at USD 34,800 plus 5 per cent of purchases for the quarter; USD 9,000 will be incurred on account, USD 48,000 accrued, USD 13,800 from expired prepaid expenses, and USD 1,200 from allocated depreciation.

Administrative expenses are budgeted at USD 42,000 plus 2 per cent of sales; USD 3,000 will be incurred on account, USD 36,000 accrued, USD 13,200 from expired prepayments, and USD 1,800 from allocated depreciation. Uncollectible accounts are estimated at 1 per cent of sales.

Interest accrues at 5 per cent annually on the notes payable and is credited to Accrued Liabilities Payable.

All of the beginning balances in Accounts Payable and Accrued Liabilities Payable, plus 80 per cent of the current credits to Accounts Payable, and all but USD 30,000 of the current accrued liabilities will be paid during the quarter. An USD 18,000 insurance premium is to be paid prior to March 31, and a full year's rent of USD 144,000 is due on January 2.

Federal income taxes are budgeted at 40 per cent of the income before federal income taxes. The taxes should be accrued, and no payments are due in the first quarter.

a. Prepare a planned operating budget for the quarter ending 2011 March 31, including supporting schedules for planned purchases and operating expenses.

b. Prepare a financial budget for 2011 March 31. Supporting schedules should be included that (1) analyze accounts credited for purchases and operating expenses, (2) show planned accounts receivable collections and balance, and (3) show planned cash flows and cash balance.

c. Will Jackson be able to collect the USD 120,000 on his note?

Davis Corporation is a rapidly expanding company. The company's post-closing balance as of 2010 December 31, is as follows: Davis corporation Post-closing trial balance 2010 December 31 Debits Credits Cash $240,000 Accounts receivable 480,000

Allowance for uncollectible

Inventories 600,000

Prepaid expenses 72,000

Land 600,000

Buildings and equipment 1,800,000 Accumulated depreciation

– Buildings and equipment

240,000

Accounts payable 360,000

Accrued liabilities payable

(including income taxes) 240,000

Capital stock 2,400,000

Retained earnings 516,000

$3,792,000 $3,792,000

Sales in the last quarter of 2010 amounted to USD 2,400,000 and are projected at USD 3,000,000 and USD 4,800,000 for the first two quarters of 2011. This expansion has created a need for cash. Management is especially concerned about the probable cash balance of 2011 March 31, since a payment of USD 360,000 for some new equipment must be made on delivery on April 2. The current cash balance of USD 240,000 is considered to be the minimum workable balance.

Purchases, all on account, are to be scheduled so that the inventory at the end of any quarter is equal to one-third of the goods expected to be sold in the coming quarter. Cost of goods sold averages 60 per cent of sales.

Selling expenses are budgeted at USD 120,000 plus 8 per cent of sales; USD 24,000 is expected to be incurred on account, USD 288,000 accrued, USD 33,600 from expired prepayments, and USD 14,400 from allocated depreciation.

Purchasing expenses are budgeted at USD 84,000 plus 5 per cent of purchases; USD 12,000 will be incurred on account, USD 156,000 accrued, USD 13,200 from expired prepayments, and USD 10,800 from allocated depreciation.

Administrative expenses are budgeted at USD 150,000 plus 3 per cent of sales; USD 24,000 will be incurred on account, USD 132,000 accrued, USD 13,200 from expired prepayments, and USD 10,800 from allocated depreciation.

Federal income taxes are budgeted at 40 per cent of income before federal income taxes and are recorded as accrued liabilities. Payments on these taxes are included in the payments on accrued liabilities discussed in item 6.

All 2010 December 31, accounts payable plus 80 per cent of current credits to this account will be paid in the first quarter. All of the 2010 December 31, accrued liabilities payable (except for USD 72,000) will be paid in the first quarter. Of the current quarter's accrued liabilities, all but USD 288,000 will be paid during the first quarter.

Cash outlays for various expenses normally prepaid will amount to USD 96,000 during the quarter.

All sales are made on account; 80 per cent of the sales are collected in the quarter in which made, and all of the remaining sales are collected in the following quarter, except for 2 per cent which is never collected. The Allowance for Uncollectible Accounts account shows the estimated amount of accounts receivable at 2010 December 31, arising from 2010 sales that will not be collected.

a. Prepare an operating budget for the quarter ending 2011 March 31. Supporting schedules for planned purchases and operating expenses should be included.

b. Prepare a financial budget for 2011 March 31. Include supporting schedules that (1) analyze accounts credited for purchases and expenses, (2) show planned cash flows and cash balance, and (3) show planned collections of accounts receivable and the accounts receivable balance.

c. Will sufficient cash be on hand April 2 to pay for the new equipment?

23.19 Answers to self-test