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Computer Superstores, Inc., has a strong belief in using highly decentralized management. You are the new manager of the company's store in the Mall...

Computer Superstores, Inc., has a strong belief in using highly decentralized management. You are the new manager of the company's store in the Mall of America. You know much about how to buy, how to display, how to sell, and how to reduce shoplifting. You know little about accounting and finance, however.
Top management is convinced that training for higher management should include the active participation of store managers in the budgeting process. You have been asked to prepare a complete master budget for your store for June, July, and August. You are responsible for its actual full preparation. All accounting is done centrally, so you have no expert help on the premises. In addition, tomorrow the branch manager and the assistant controller will be here to examine your work; at that time, they will assist you in formulating the final budget document. The idea is to have you prepare the budget a few times so that you gain more confidence about accounting matters. You want to make a favorable impression on your superiors, so you gather the following data as of May 31, 20X5:
Cash $29,000 Recent and Projected Sales
Inventory 420,000 April       $300,000
Accounts receivable 369,000 May         350,000
Net furniture and fixtures 168,000 June         700,000
Total assets $986,000 July          400,000
Accounts payable $475,000 August        400,000
Owners' equity 511,000 September     300,000
Total liabilities and owners' equities $986,000
Credit sales are 90% of total sales. Credit accounts are collected 80% in the month following the sale and 20% in the following month. Assume that bad debts are negligible and can be ignored. The accounts receivable on May 31 are the results of the credit sales for April and May:
(.20 x .90 x $300,000) + (1.0 x .90 x $350,000) = $369,000.
The average gross profit on sales is 40%.
The policy is to acquire enough inventory each month to equal the following month's projected cost of goods sold. All purchases are paid for in the month following purchase.
Salaries, wages, and commissions average 20% of sales; all other variable expenses are 4% of sales. Fixed expenses for rent, property taxes, and miscellaneous payroll and other items are $55,000 monthly. Assume that these variable and fixed expenses require cash disbursements each month. Depreciation is $2,500 monthly.
In June, $55,000 is going to be disbursed of $25,000 is to be maintained. Also assume that all borrowings are effective at the beginning of the month and all repayments are made at the end of the month of repayment. Interest is paid only at the time of repaying principal. The interest rate is 10% per annum; round interest computations to the nearest ten dollars. All loans and repayments of principal must be made in multiples of a thousand dollars.
1. Prepare a budgeted income statement for the coming quarter, a budgeted statement of monthly cash receipts and disbursements (for each of the next three months), and a budgeted balance sheet for August 31, 20X5. All operations are evaluated on a before-income-tax basis, so income taxes may be ignored here.
2. Explain why there is a need for a bank loan and what operating sources supply cash for repaying the bank loan.

Computer Superstores, Inc., has a strong belief in using highly
decentralized management. You are the new manager of the company’s
store in the Mall of America. You know much about how to buy, how to
display, how to sell, and how to reduce shoplifting. You know little
about accounting and finance, however.
Top management is convinced that training for higher management should
include the active participation of store managers in the budgeting
process. You have been asked to prepare a complete master budget for
your store for June, July, and August. You are responsible for its
actual full preparation. All accounting is done centrally, so you have
no expert help on the premises. In addition, tomorrow the branch manager
and the assistant controller will be here to examine your work; at that
time, they will assist you in formulating the final budget document. The
idea is to have you prepare the budget a few times so that you gain more
confidence about accounting matters. You want to make a favorable
impression on your superiors, so you gather the following data as of May
31, 20X5:
Cash $29,000 Recent and Projected Sales
Inventory 420,000 April $300,000
Accounts receivable 369,000 May 350,000
Net furniture and fixtures 168,000 June 700,000
Total assets $986,000 July 400,000
Accounts payable $475,000 August 400,000
Owners’ equity 511,000 September 300,000
Total liabilities and owners’ equities $986,000
Credit sales are 90% of total sales. Credit accounts are collected 80%
in the month following the sale and 20% in the following month. Assume
that bad debts are negligible and can be ignored. The accounts
receivable on May 31 are the results of the credit sales for April and
May:
(.20 x .90 x $300,000) + (1.0 x .90 x $350,000) = $369,000.
The average gross profit on sales is 40%.
The policy is to acquire enough inventory each month to equal the
following month’s projected cost of goods sold. All purchases are paid
for in the month following purchase.
Salaries, wages, and commissions average 20% of sales; all other
variable expenses are 4% of sales. Fixed expenses for rent, property
taxes, and miscellaneous payroll and other items are $55,000 monthly.
Assume that these variable and fixed expenses require cash disbursements
each month. Depreciation is $2,500 monthly.
In June, $55,000 is going to be disbursed of $25,000 is to be
maintained. Also assume that all borrowings are effective at the
beginning of the month and all repayments are made at the end of the
month of repayment. Interest is paid only at the time of repaying
principal. The interest rate is 10% per annum; round interest
computations to the nearest ten dollars. All loans and repayments of
principal must be made in multiples of a thousand dollars.
Prepare a budgeted income statement for the coming quarter, a budgeted
statement of monthly cash receipts and disbursements (for each of the
next three months), and a budgeted balance sheet for August 31, 20X5.
All operations are evaluated on a before-income-tax basis, so income
taxes may be ignored here.
Explain why there is a need for a bank loan and what operating sources
supply cash for repaying the bank loan.

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