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Question: Mahendra Toys is a wholesale distributor of gifts and accessories. The following data relates to their balance sheet as of 31 December 2019.

Current Assets

Cash

$ 8,000

Accounts Receivable

$ 42,000

Inventory

$ 10,200

Building and equipment, Net*

$136,000

Total Assets

$196,200

Current Liabilities

Accounts Payable

$ 30,200

Common Shares

$120,000

Retained Earnings

$ 46,000

Total Liabilities & Owners Equity

$196,200

a. The gross margin for the company is 44% of sales.

b. Actual and budgeted sales data are as follows

December (Actual)

$80,000

January

$50,000

February

$70,000

March

$60,000

April

$70,000

c. Sales are 30% in cash and 70% in credit. Credit sales are collected in the month following the sale. d. Each months ending inventory should be 25% of the following months budgeted cost of goods sold.

e. 30% of the months inventory purchases are paid for in the month of purchase; the remaining 70% is paid for in the following month.

f. Monthly expenses are as follows: salaries, $10,000; rent, $6,000; advertisements, $2,000; other expenses (excluding depreciation), 12% of sales. Depreciation is $3,200 for the quarter and includes depreciation on new assets acquired during the quarter.

g. Equipment will be acquired for cash: $4,000 in January and $6,000 in March. h. Management would like to maintain a minimum cash balance of $6,000 at the end of each month. Assume the company can borrow at 0% interest and they do not pay any income tax. All borrowing occurs at the beginning of a month. The company will, as far as it is able, repay outstanding loans at the end of each month

1. Prepare the following budgets for each of the first three months of 2020. [20 Marks] - Schedule of Expected Cash Collection

- Merchandise Purchase Budget

- Schedule of Cash Disbursement for Purchase

- Schedule of Cash Disbursement for S & A expenses

- Cash Budget

2. Prepare a budgeted income statement for the first three months of 2020 and a budgeted balance sheet as of March 31, 2020 [ 10 Marks]

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