ASSIGNMENT NO.

4
5 Marks

The Country Store is a retail outlet for a variety of hardware and housewares. The owner is eager to
prepare a budget and is especially concerned with her cash position. The company will have to borrow in
order to finance purchases made in preparation for high expected sales during the busy last quarter of
the year. When the company needs cash, borrowing occurs at the end of a month. When cash is available
for repayments, the repayment occurs at the end of a month. The company pays interest in cash at the
end of every month at a monthly rate of 1% on the amount outstanding during that month.

The owner has gathered the data shown in the Table below to prepare the simplified budget. In addition,
she will purchase equipment in October for $19,750 cash and pay dividends of $4,000 in December.

You are required to prepare the Country Store’s master budget for the months of October, November,
and December.

Table
Balance Sheet as at September 30, 20X1 Budgeted sales
Assets September (actual) $ 60,000
Cash $ 9,000 October $ 70,000
Accounts receivable $ 48,000 November $ 85,000
Inventory $ 12,600 December $ 90,000
Plant and equipment (net) $ 200,000 January 20X2 $ 50,000

Total Assets $ 269,600

Other data:
Liabilities and stockholders’ equity Required minimum cash balance $ 8,000
Interest payable $0 Sales mix, cash/credit
Note payable $0 Cash sales 20%
Accounts payable $ 18,300 Credit sales (collected the following 80%
month)
Capital stock $ 180,000 Gross profit rate 40%
Retained earnings $ 71,300 Loan interest rate (interest paid in 12%
cash monthly)
Total liabilities and stockholders’ equity $ 269,600
Inventory paid for in
Budgeted expenses Month purchased 50%
Salaries and wages $ 7,500 Month after purchase 50%
Freight out as a percent of sales 6% Salaries and wages, freight out,
advertising, and other expenses are
paid in cash in the month incurred
Advertising $ 6,000
Depreciation $ 2,000
Other expenses as a percent of sales 4%
Minimum inventory policy as a percent 30%
of next month’s cost of goods sold