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	$	71,000
Accounts receivable		131,000
Inventory		45,500
Plant and equipment, net of depreciation		215,000
Total assets	$	462,500
Liabilities and Stockholders’ Equity
Accounts payable	$	76,000
Common stock		307,000
Retained earnings		79,500
Total liabilities and stockholders’ equity	$	462,500

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

1. Estimated sales for July, August, September, and October will be $260,000, $280,000, $270,000, and $290,000, 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 25% 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 $48,000. Each month $5,000 of this total amount is depreciation expense and the remaining $43,000 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.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					131,000			131,000
From July sales		(260,000*35%;65%)			91000	169000		260000
From August sales		(280,000*35%;65%)				98000	182000	280000
From September sales		(270,000*35%)					94500	94500
Total cash collections					222,000	267000	276500	765,500
			Accounts receivable 270,000*65%=				175500
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(70% of sales)		182000	196000	189000	567000
Add:Desired ending merchandise inventory					49000	47250	54375	54375
total needs					231000	243250	243375	621375
less: Beginning merchandise inventory					45,500	49000	47250	45,500
Required purchased					185,500	194250	196125	575,875
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					76,000			76,000
From July purchases					74200	111300		185500
From august purchases						77700	116550	194250
From September purchases							78450	78450
total cash disbursements					150,200	189000	195000	534,200
		Accounts payable		266250*60%		117675
3)		Income Statement
	Sales						810000
	cost of goods sold						567000
	Gross profit						243000
	Selling and administrative expense				(48000*3)		144000
	net operating income						99000
	interest expense						0
	net income (loss)						99000
4)		Balance sheet
	Assets
	Cash						173,300
	Account receivable						175500
	inventory						54375
	Plant and Equipment,net						200000
	Total Assets						603175
	Liabilities and Stockholders Equity
	Accounts payable						117675
	Capital Stock						307,000
	Retained earnings						178500
	Total liabilities & Stockholder's Equity						603175