Barrowman company prepares its master budget on a quarterly basis.


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Barrowman Company prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:


a.  As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
                                   Debits                         Credits

Cash                                                                                                   $48,000

Accounts Receivable                                    224,000

Inventory                                                     60,000

Buildings & Equipment (net)                        370,000

Accounts Payable                                                                       $93,000

Paid In Capital                                                                           500,000


Retained Earnings                                                                                109,000
                                                               $702,000                              $702,000




Actual sales for December and budgeted sales for the next four months are as follows:


December                           $280,000

January                                  400,000

February                                600,000

March                                     300,000

April                                         200,000


c.             Sales are 20% for cash and 80% on credit. 


All payments on credit sales are collected in the month following the sale (no doubtful accounts are anticipated). 


Accounts receivable reflect only inventory sales (no other types of sales are included).


d.            The company’s gross profit (gross margin) rate is 40%




Monthly cash expenses are budgeted as follows:

                shipping = 5% of sales


advertising = $70,000 per month
                salaries & wages = $27,000 per month


other expenses = 3% of sales
     depreciation for the quarter is budgeted at $42,000




Each month’s ending inventory is budgeted at 25% of the following month’s cost of goods sold.


g.            One-half of a month’s inventory purchases is paid for up front at the time of purchase; the other half is paid in the next month. 


Accounts payable relates solely to inventory (no other types of purchases are included in AP.


h.            During February, the company will purchase a copier for $1,700 in cash. 


During March, additional equipment will be purchased for cash at a cost of $84,500

i.              During January, the company will declare and pay $45,000 in cash dividends.


j.             An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. 


All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. 


The company must maintain a minimum cash balance of $30,000.   


Borrowings and repayments of principal must be in multiples of $1,000. 



Interest is paid only at the time of payment of principal.  The annual interest rate is 12%.