After securing lease commitments from several major stores, Auer Shopping Center, Inc was organized and built a shopping center in a growing suburb

After securing lease commitments from several major stores, Auer Shopping Center, Inc was organized and built a shopping center in a growing suburb. The shopping center would had opened on scheduled January 1, 2020 if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2010. All of the additional construction costs were incurred as a result of the tornado were covered by insurance.

In July 2009, in anticipation of the scheduled January opening a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space and manager the property. A summary of some of the costs incurred in 2009 and the firs nine months of 2010 follows:

2009 January 1, 2010 to September 30, 2010
Interest on Mortgage Bonds 720,000 540,000
Cost of obtaining tenants 300,000 360,000
Promotional Advertising 540,000 557,000

The promotional advertising campaign was designed to familiarize shoppers the center. Had it been known in time that the center would not open until October 2010, the 2009 expenditure would not had been made. The advertising had to be repeated in 2010 .
All of the tenants who had leased space in the shopping center at the time of the tornado had accepted the October occupancy date on condition the rental charge for the first 9 months of 2010 was cancelled.

Instructions:
Explain how each of the costs for 2009 and the first 9 months of 2010 should be treated in the accounts of the shopping center corporation. Give reasons for each treatment?


Click here for the solution: After securing lease commitments from several major stores, Auer Shopping Center, Inc was organized and built a shopping center in a growing suburb

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country

Case 9-30 Master Budget with Supporting Schedules

EARRINGS UNLIMITED

Minimum ending cash balance $50,000
Selling price $10

Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000

Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4

Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000

Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000

Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000

Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000

Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX

Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country