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	$	82,000
Accounts receivable		129,000
Inventory		52,500
Plant and equipment, net of depreciation		217,000
Total assets	$	480,500
Liabilities and Stockholders’ Equity
Accounts payable	$	78,000
Common stock		347,000
Retained earnings		55,500
Total liabilities and stockholders’ equity	$	480,500

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

Estimated sales for July, August, September, and October will be $280,000, $300,000, $290,000, and $310,000, respectively.

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.

Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% 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.

Monthly selling and administrative expenses are always $52,000. Each month $5,000 of this total amount is depreciation expense and the remaining $47,000 relates to expenses that are paid in the month they are incurred.

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. Also compute total cash collections for the quarter ended September 30.

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. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

Sales Bud 2 3 Sales 4 Julv 280000 August tember uarter 300000 290000 870000 chedule of Expected Cash Collection 6 7 Coll. From June Sales 8 July sales August september Quarter 129000 129000 280000 1,95,000 300000 1,01,500101500 98,000182000 August sale 1,05,000 10 Sept. sales 12 Total Cash Collections 13 2,27,0002,87,000 2,96.5008,10,500 14 Purchases Bud 15 16 JulyAugust 210000 56,250 266250 52,500 213750 september Quarter 17 Budgeted COGS 18 Add:- Desired ending Inventory 19 Total needs 20 Less Beginning inventory 21 Reqd. purchases 225000 54,375 279375 56,250 223125 217500 58,125 275625 54,375 221250 652500 58,125 310000 * 75 % * 25 %-58125 710625 26560 684065 23 24 25 June Purchases 26 July Purchases chedule of Expected Cash Disbursement August september Quarter 78,000 85500 78,000 213750 133875223125 88500 2,22,3756,03,375 128250 89250 27 Aug Purchase 28 29 Total Cash Disbursement for Purchases 30 88500 1,63,5002,17,500

31 32 33 Cash Balance Beginning 34 Add Cash Collections 35 Total Cash Available 36 Less Cash Disburtments: 37 Inventory Purchases 38 Selling and adm 39 Total Cash Disbursement 40 Excess (deficiency) of cash 41 Financing: 42 Borrowings 43 Repayments 44 Interest 45 Total Financin 46 Cash Balance, En 47 48 Beech 49 Income Statement 50 51 Sales 52 Less: 53 COGS 54 55 gross margin 56 Fised Expenses:- 57 Selling and adm. Exp. 58 Depreciation 59 Net Operating Income 60 Interest Expenses 61 Net Income 62 Cash Budget JulyAugust 82,00098,500 2,27.000 2,87,000 3,09,0003,85,500 september Quarter ,21,000 82,000 2,96,5008,10,500 4,17,5008,92,500 1,63,500 2,17,500 2,22,3756,03,375 47,000141,000 - 2,69,3757,44,375 1,48,125 1,48,125 1 47,000 47,000 2,10,5002,64,500 98,500 ,21,000 0 0 0 48,1251,48,12:5 8,70,000 6,52,500 6.52,500 2,17,500 1,41,000 15,000 1,56,000 61,500 0 61,500

64 Balance Sheet 65 66 Assets 67 Current Assets: 68 Cash 69 Accounts Receivable 70 Inv 71 72 Total Current Assets 73 Buildings and Equipment, Net 74 2 1 7000-1 5000 75 Total Assets 76 1,48,125 1,88,500 ( 290000 * 65 %) 58,125 3,94,750 2,02,000 5,96,750 Liabilities and Equity 78 Current Liabilities 79 Accounts Payable 80 81 StockHolder's Equity 82 Capital Stock 83 Retained Earnings (55500+ 615 84 Total Liabilities and Equity 85 86 87 132750 ( 221250 * 60 % ) 347000 1.17,0004,64,000 5,96,750

les Bud 2 3 Sales 4 Julv August tember Quarter 280000 300000 290000 -B3+C3+D3 chedule of Expected Cash Collection 6 7 Coll. From June Sales 8 July sales 9 August sale 10 Sept. sales Julv August september Quarter B7+C7+D7 B8+C8+D8 B9+C9+D9 B10 C10+D10 129000 B3 0.35 B3 0.65 C3*0.35 -C3*0.65 D3 0.35 12 Total Cash Collections 14 16 B7+B8+B9+B10+B1 C7+C8+C9+C10+C11 D7+D8+D9+D10+D11 E7+E8+E9+E10+E11 13 Purchases Bud 15 Julv August september Quarter 17 Budgeted COGS 18 Add:- Desired ending Inventory 19 Total needs 20 Less Beginning inventory 21 Reqd. purchases -B3*0.75 -C17 0.25 -B17+818 52500 -B19-820 -C3 0.75 -D17*0.25 -C17+C18 -D3 0.75 58125 -D17+D18 С 18 -D19-D20 B17+C17+D17 =D18 -E17+E18 26560 -E19-E20 310000 * 75 % * 25 %: 58125 B18 -C19-C20 23 24 chedule of Expected Cash Disbursement Julv August september Quarter 25 June Purchases 78000 -B25 26 July Purchases -B21 0.4 -B21 0.6 -C21 0.4 B26 C26+D26 B27+C27+D27 B28+C28+D28 27 Aug Purchase C21 0.6 -D21 0.4 28 29 Total Cash Disbursement for Purchases 30 hases B25+B26+B27+B28 C25+C26+C27+C28 D25+D26+D27+D28 -E25+E26+E27+E28

August september Quarter 33 Cash Balance Beginning 82000 -C46 -D12 -D33+D34 B33 E12 E33+E34 Add Cash Collections 35 Total Cash Available 36 Less Cash Disburtments: 37 Inventory Purchases 38 Selling and adm. Exp 39 Total Cash Disbursement 40 Excess (deficiency) of cash 41 Financing: 42 Borrowings 43 Repayments 44 Interest 45 Total Financing 46 Cash Balance, Ending -B33+B34 -C33 C34 B29 B38+C38+D38 -SUM(D37 :D38) -D35-D39 SUM E37:E3 -E35-E39 B35-B39 -C35-C39 B42+C42+D42 D43 D43+D44 D40-D45 E42+E43+E44 B42+B40 C42-C40 -E40+E42+E43+E44 48 Beech 49 Income Statement 51 Sales 52 Less: 53 COGS E17 55-1 gross margin 56 Fised Expenses 57 Selling and adm. Exp. 58 Depreciation 59 Net Operating Income 60 Interest Expenses 61 Net Income -C51-C54 E38 15000 B57-B58 C55-C58 =C59+C60

64 Balance Sheet 65 66 Assets 67 Current Assets 68 Cash 69 Accounts Receivable D46 188500 58125 290000 * 65 % 70 Inv 71 72 Total Current Assets 73 Buildings and Equipment, Net C68+C69+C70+C71 74 217000 15000 202000 -C72+C74 75 Total Assets 76 Liabilities and Equity 78 Current Liabilities 79 Accounts Payable 80 81 StockHolder's Equity: 82 Capital Stock 83 Retained Earnings (55500+ 615 84 Total Liabilities and Equity 85 86 87 132750 221250 * 60 % ) 347000 117000 B82+B83 C79+C80+C83 89