Question

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	72,000
Accounts receivable		128,000
Inventory		60,900
Plant and equipment, net of depreciation		218,000
Total assets	$	478,900
Liabilities and Stockholders’ Equity
Accounts payable	$	79,000
Common stock		308,000
Retained earnings		91,900
Total liabilities and stockholders’ equity	$	478,900

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $290,000, $310,000, $300,000, and $320,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $54,000. Each month $5,000 of this total amount is depreciation expense and the remaining $49,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Prepare a schedule of expected cash collections for July, August, and September.

REQ 1

	Schedule of Expected Cash Collections Month July August September Quarter From accounts receivable $0 From July sales 0 From August sales 0 From September sales 0 Total cash collections $0 $0 $0 $0

REQ2A

Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

	Merchandise Purchases Budget July August September Quarter Budgeted cost of goods sold Add: Desired ending merchandise inventory Total needs Less: Beginning merchandise inventory Required purchases

REQ2B

Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

	Schedule of Cash Disbursements for Purchases July August September Quarter $0 From July purchases 0 From August purchases 0 From September purchases 0 Total cash disbursements $0 $0 $0 $0

REQ3

Prepare an income statement that computes net operating income for the quarter ended September 30.

	Beech Corporation Income Statement For the Quarter Ended September 30 0 0

REQ4

Prepare a balance sheet as of September 30.

	Beech Corporation Balance Sheet September 30 Assets Total assets $0 Liabilities and Stockholders' Equity Total liabilities and stockholders' equity $0

Answer 1

Solutions:

Schedule of expected cash collection - Beech Corporation Particulars July August September Accounts Receivables from June $128,000.00 Cash received for July Sale $101,500.00 $188,500.00 Cash received for August Sale $108,500.00 $201,500.00 Cash received for September Sale $105,000.00 Total $128,000.00 $290,000.00 $310,000.00 $105,000.00 Budgeted Cash Collection $229,500.00 $297,000.00 $306,500.00 $833,000.00 16 17 Material Purchase Budget - Beech Corporation Particulars July August September Budgeted Sales $290,000.00 $310,000.00 $300,000.00 Cost of Sales (70% of Sales) $203,000.00 $217,000.00 $210,000.00 Add: Desired ending inventory (30% of COGS of next month) $65,100.00 $63,000.00 $67,200.00 Less: Opening Inventory $60,900.00 $65,100.00 $63,000.00 Total $900,000.00 $630,000.00 $67,200.00 $60,900.00 Budgeted purchases (in dollars) $207,200.00 $214,900.00 $214,200.00 $636,300.00 Schedule of expected cash disbursement for merchandise purchases - Beech Corporation Particulars July August September Total Payables from June $79,000.00 $79,000.00 July Purchases $82,880.00 $124,320.00 $207,200.00 August Purchases $85,960.00 $128,940.00 $214,900.00 September Purchases $85,680.00 $85,680.00 Total payments in month $161,880.00 $210,280.00 $214,620.00 $586,780.00 Sheet181 (29) Sheet181 (30) Sheet578 ) Sheet31 ) She

Income Statement - Beech Corporation For Quarter Ended - September 30 Particulars Sales Cost of Sales Gross Profit Operating Expenses: Selling and adminstrative expenses (54000*3) Amount $900,000.00 $630,000.00 $270,000.00 12 13 $162,000.00 14 15 16 Net Income $108,000.00 18 Balance Sheet- Beech Corporation 30-Sep Particulars Amount Assets: $171,220.00 $195,000.00 $67,200.00 Cash ($72,000 + $833,000 - $586,780 - $49000*3) Accounts receivables ($300,000*65%) Inventory Plant and equipment net of depreciation ($218,000 - $5, 000*3) Total Assets $203,000.00 $636,420.00 28 Liabilities and stockholder's Equity: Accounts payable ($214200*60%) Common Stock Retained Earnings ($91900 + $ 108,000) Total liabilities and stockholders equity 30 $128,520.00 $308,000.00 $199,900.00 $636,420.00 32 33 34 35 36 38 40 41 42 Sheet181 (29) Sheet181 (30) Sheet578 Sheet31 ) She