ACC Problem 2 – Peyton Department Store

Problem 2- Developing a Master Budget for a Merchandising OrganizationPeyton Department Store prepares budgets quarterly. The following information isavailable for use in planning the second quarter budgets for 2014.Peyton Department StoreBalance SheetMarch 31,2014AssetsLiabilities andStockholders EquityCash..$3,000Accountspayable..$26,000Accounts receivable..25,000Dividendspayable..17,000Inventory..30,000Rentpayable.2,000Prepaid insurance2,000Stockholdersequity..40,000Fixtures..25,000Total Assets.$85,000equity$85,000Total liabilities andActual and forecasted sales for selected months in 2014 are as follows:MonthSales RevenueJanuary. $60,000February…50,000March..40,000April50,000May.60,000June70,000July90,000August.80,000Monthly operating expenses are as follows:Wages andsalaries..$25,000Depreciation100Utilities1000Rent2,000Cash dividends of $17,000 are declared during the third month of each quarter and arepaid during the first month of the following quarter. Operating expenses, exceptinsurance, rent and depreciation are paid as incurred. Rent is paid during the followingmonth. The prepaid insurance is for five more months. Cost of goods sold is equal to 50percent of sales. Ending inventories are sufficient for 120 percent of the next monthssales. Purchases during any given month are paid in full during the following month. Allsales are on account, with 50 percent collected during the month of sale, 40 percentduring the next month, and 10 percent during the month thereafter. Money can beborrowed and repaid in multiples of $1000 at an interest rate of 12 percent per year. Thecompany desires a minimum cash balance of $3000 on the first of each month. At thetime the principal is repaid, interest is paid on the portion of principal that is repaid. Allborrowing 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.Requireda. 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 June30, 2014. Do not include borrowings.c. Prepare a cash disbursements schedules for each month of the second quarterending 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.