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	$   90,000
Accounts receivable	136,000
Inventory	62,000
Plant and equipment, net of depreciation	210,000
Total assets	$ 498,000
Liabilities and Stockholders’ Equity
Accounts payable	$   71,100
Common stock	327,000
Retained earnings	99,900
Total liabilities and stockholders’ equity	$ 498,000

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

1.	Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, 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 60% 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 $60,000. Each month $5,000 of this total amount is depreciation expense and the remaining $55,000 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. (1) CASH COLLECTIONS SCHEDULE July August Sept quarter From acc Receivable From July sales From august sales from Sept sales Total Monthly Cash Collection (2) MERCHANDIZE PURCHASE SCHEDULE July August Sept quarter Budgeted COGS Desired ending Inv Total needs Beginning Inventory (Less) Required Purchases (2-b) MERCHANDIZE PAYMENT SCHEDULE July August Sept quarter From account payable From july purchases From August purchases From Sept purchases Total cash disbursment (3) INCOME STATEMENT July August Sept TOTAL Estimated Sales Less: COGS Gross Profit Less Net Profit 4) Prepare Balance sheet as of Sept 30:

Answer 1

Concepts and reason

Budgeting: It is the process of establishing future financial goals for a business entity and creating plans to achieve the goals. It includes forecasting and preparation of budgets for different business activities to be performed by an organization during a future period.

Budget: It is a written plan of a business activity to be executed in future and expressed in quantitative terms. A business entity prepares a budget for almost all the activities. Therefore, several budgets a prepared for a period.

Financial Statements: Financial statements are the reports prepared by entity to present the financial information of the entity. There are four financial statements that are prepared, that is income statement, balance sheet, statement of changes in equity and cash flow statement. Financial statements provide the information about the financial position of the company to internal and external users.

Following are the financial statements that the businesses need to prepare:

• Statement of income/loss

• Statement of change in equity

• Balance sheet/Statement of financial position

• Statement of cash flows

Income statement is also known as the statement of profit and loss or statement of earnings. Income statement reports a company’s revenues and its expenses. It reports the result of a company for a period in terms of profit or loss.

Statement of changes in equity reports the total changes in shareholders’ equity during a period of time. Shareholder’s equity primarily includes share capital and retained earnings.

A statement of financial position reports assets, liabilities and shareholders’ equity. It is commonly known as a balance sheet. The balance sheet satisfies the accounting equation, that is:

It is known as balance sheet as it balances the accounting equation.

Statement of Cash flow: A cash flow statement reports the flows of cash in a business, that is, the cash receipts and cash payment of a business for a specific period. Cash flow statement reflects the effect of various operating, investing and financing activities on the cash and cash-equivalents.

Accounting Cycle: The process of accounting begins when a transaction takes place and ends when the transaction is recorded in the books of accounts. This process keeps on repeating itself and is therefore known as the accounting cycle. The accounting cycle is as follows:

• The first step in the accounting cycle is identifying the transactions that have occurred.

• The second step is recording of transactions using journal entries.

• The next step is posting the journal entries to the respective ledger accounts.

This process of identifying, recording and posting are performed throughout the accounting process. Further steps in the accounting cycle are performed at the end of the accounting period.

The next steps are as follows:

• Preparation of unadjusted trial balance to confirm that the total debits are equal to the total credits.

• Recording adjusting journal entries.

• Preparation of adjusting journal entries and posting them to the ledger accounts

• Preparing the adjusted trial balance

• Preparation of financial statements, that is, income statement, statement of changes in equity, balance sheet and cash flow statement.

Fundamentals

Cash collected during a month is the sum of amount received from account receivables and cash sales during a month, that is cash collected by virtue of sales in the current month and during previous months.

Payment Schedule is a statement of amounts to be paid on account of purchases made in current month and during previous months.

Prepare schedule for cash collections as follows:

Formulas for the above are as follows:

Prepare the merchandize purchase schedule as follows:

Formulas for the above calculations are as follows:

Prepare merchandize payment schedule as follows:

Formulas for the above calculations are as follows:

Prepare income statement as follows:

Formulas for the above calculation are as follows:

Prepare the balance sheet as follows:

Thus, the total of assets and liabilities and stockholders’ equity is $592,260 each.

Ans: Part 1

Part 2

Part 2-b

Part 3

Part 4

Total of assets and liabilities and stockholders’ equity is $592,260 each.