Value 1000 Points: The Following Data Relate To Operations

1value1000 Points The Following Data Relate To The Operations O

The following data relate to the operations of Picanuy Corporation, a wholesale distributor of consumer goods: Current assets as of December 31: Cash $6,000; Accounts receivable $36,000; Inventory $9,800; Buildings and equipment, net $110,885; Accounts payable $32,550; Capital stock $100,000; Retained earnings $30,135. The gross margin is 30% of sales, meaning cost of goods sold is 70% of sales. Actual and budgeted sales data are provided for December through April. Sales are 40% for cash and 60% on credit, with credit sales collected in the month following sale. Each month’s ending inventory should equal 20% of the following month’s budgeted cost of goods sold. Inventory purchases are paid one-quarter in the month of purchase and three-quarters in the following month. Monthly expenses include commissions ($12,000), rent ($1,800), and other expenses (8% of sales), paid monthly. Depreciation totals $2,400 for the quarter. Equipment acquisitions are scheduled for $3,000 in January and $8,000 in February. Management aims to maintain a minimum cash balance of $5,000 monthly and may borrow in $1,000 increments up to $50,000. The interest rate is 1% per month, not compounded, with repayments and interest paid at quarter-end. Required: Using the provided data, complete the following schedules and financial statements: 1. Schedule of Expected Cash Collections for January, February, and March, and the quarter total. 2. Merchandise Purchases Budget for January, February, and March, and the quarter total. 3. Schedule of Expected Cash Disbursements for Merchandise Purchases. 4. Cash Budget for January, February, and March, and the quarter total. 5. Absorption Costing Income Statement for the quarter ending March 31. 6. Balance Sheet as of March 31.

Paper For Above instruction

Introduction

Picanuy Corporation operates as a wholesale distributor serving the consumer goods market. This analysis involves preparing detailed financial schedules, including cash collections, purchases, disbursements, and budgeting, to understand cash flow management and financial positioning during the first quarter of the year. Accurate forecasting is crucial for ensuring liquidity, planning inventory, managing expenses, and preparing cohesive financial statements in accordance with managerial accounting principles.

Cash Collections Schedule

The schedule of expected cash collections considers both cash and credit sales, with credit sales from the previous month being collected in the current month. For January, total sales are estimated at $70,000, with 40% in cash ($28,000) and 60% credit ($42,000). Since credit sales are collected the following month, collections for January include 40% of January sales in cash and 60% of December credit sales. Given December’s credit sales were $36,000, collections from December credit sales in January amount to $21,600, and from January credit sales, $25,200 (60% of $42,000). Total collections for January would be cash sales ($28,000) plus credit collections from December ($21,600) and January credit sales ($25,200), totaling $74,800. Similar calculations apply for February and March, resulting in the expected cash collections schedule as follows:

• January: $28,000 (cash sales) + $21,600 (from December credit sales) + $25,200 (credit sales in January) = $74,800
• February: $35,200 (40% of February sales) + collections from January credit sales = $28,000 + $25,200 = $53,200
• March: $34,000 (40% of March sales) + collections from February credit sales = $28,000 + $30,000 = $58,000

Students should note the importance of timely collection and carrying over receivables, which impact cash flow forecasts.

Merchandise Purchases Budget

Based on the sales forecast and gross margin, the cost of goods sold (COGS) is 70% of sales, with estimated purchases for the period. For January, COGS is 70% of $70,000, equaling $49,000. Inventory policies specify that ending inventory should equal 20% of the next month’s COGS. Beginning inventory equals December's ending inventory ($9,800). Required purchases are adjusted to meet these inventory levels. The purchases for January are calculated as follows:

• Desired ending inventory for January: 20% of February’s COGS ($80,000 × 70% = $56,000), so ending inventory = 20% of $56,000 = $11,200.
• Required purchases: COGS ($49,000) + desired ending inventory ($11,200) – beginning inventory ($9,800) = $50,400.

The same methodology applies for February and March, considering each month’s COGS and desired ending inventory. The purchases schedule displays the payment pattern: 25% in the purchase month, 75% in the following month, affecting accounts payable and cash disbursements.

Cash Disbursements for Merchandise Purchases

The schedule accounts for payments of outstanding accounts payable, purchases made in each month, and timing of cash payments. Beginning accounts payable are December’s purchases of $32,550. Jan purchases total $12,600, paid 25% in January ($3,150) and 75% in February ($9,450). Payables from previous months are settled in subsequent months, leading to total disbursed amounts accordingly.

Cash Budget Preparation

The cash budget integrates all cash inflows and outflows, projected changes in cash balances, borrowing needs, interest payments, and repayments. Starting with an initial cash balance of $6,000, expected collections add to cash. Disbursements for purchases, operating expenses, and equipment reduce cash. A minimum balance of $5,000 guides borrowing activities—additional borrowing is made to cover deficits, with interest calculated at 1% monthly on outstanding loans. Monthly loan status, repayments, and interest are tracked, ensuring coverage of operational needs and maintaining liquidity.

Income Statement and Balance Sheet

The absorption costing income statement consolidates revenues and expenses, including COGS, administrative expenses, depreciation, and interest. The net income reflects the period’s profitability considering all relevant costs.

The balance sheet measures the company’s financial position as of March 31, listing assets in order of liquidity, including current assets (cash, receivables, inventories, and fixed assets net of depreciation) and liabilities (accounts payable, loans) along with stockholders’ equity segments.

Conclusion

This comprehensive financial analysis and scheduling are vital for effective cash flow management, ensuring operational stability, supporting strategic decision-making, and complying with accounting standards. Accurate anticipations of cash inflows and outflows allow Picanuy Corporation to optimize liquidity, manage debts, and confidently prepare financial reports to inform stakeholders.

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