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Colerain Corporation is a merchandising company that is preparing a budget for the third quarter of the calendar year. The company's balance sheet as of June 30 is shown below: COLERAIN CORPORATION Balance Sheet June 30 Assets $ 94,000 140,000 Cash Accounts receivable Inventory Plant and equipment, net of depreciation 66,000 340,000 $ 640,000 Total assets Liabilities and Shareholders' Equity Accounts payable $ 75,000 440,000 125,000 Common shares Retained earnings Total liabilities and shareholders equity $640,000 Colerain's managers have made the following additional assumptions and estimates a. Estimated sales for July, August, September, and October will be $270,000O $290,000, $280,00o, and $300,000, respectively. b. All sales are on credit and all credit sales are collected. Each month's credit sales are collected 20% in the month of sale and 80% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. c. Each month's ending inventory must equal 30% of the cost of next month's sales. The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. d. Monthly selling and administrative expenses are always $79,000. Each month, $7,000 of this total amount is depreciation expense and the remaining $72,000 relates to expenses that are paid in the month they are incurred. e. 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 shares or repurchase its own shares during the quarter ended September 30.

Answer 1

1.

	July	August	September	Quarter
From Accounts Receivable	$   1,40,000			$    1,40,000
Sales on account
July	$       54,000	$    2,16,000		$    2,70,000
August		$        58,000	$       2,32,000	$    2,90,000
September			$           56,000	$       56,000
Total Cash Collections	$   1,94,000	$    2,74,000	$       2,88,000	$    7,56,000

2a.

	July	August	September	Quarter
Expected Sales	$   2,70,000	$    2,90,000	$       2,80,000
Budgeted cost of Goods Sold @65%	$   1,75,500	$    1,88,500	$       1,82,000	$    5,46,000
Add : Desired Ending Inventory	$       56,550	$        54,600	$           58,500	$       58,500
Total Needs	$   2,32,050	$    2,43,100	$       2,40,500	$    6,04,500
Less : Beginning Inventory	$       66,000	$        56,550	$           54,600	$       66,000
Required Purchases	$   1,66,050	$    1,86,550	$       1,85,900	$    5,38,500

2b.

	July	August	September	Quarter
From Accounts Payable	$       75,000			$       75,000
Purchases on account
July	$       83,025	$        83,025		$    1,66,050
August		$        93,275	$           93,275	$    1,86,550
September			$           92,950	$       92,950
Total Cash Payments	$   1,58,025	$    1,76,300	$       1,86,225	$    5,20,550

3.

Income Statement
Sales Revenue	$   8,40,000
Cost of Goods Sold	$   5,46,000	=840000*65%
Gross Profit	$   2,94,000
Selling and administrative expenses	$   2,37,000	=79000*3
Operating Income	$       57,000

4.

Balance Sheet
Assets
Cash	$   1,13,450	=94000+756000-520550-72000*3
Accounts Receivable	$   2,24,000	=280000*80%
Inventory	$       58,500	=300000*65%*30%
Plant and Equipment, net of depreciation	$   3,19,000	=340000-7000*3
Total Assets	$   7,14,950
Liabilities and Stockholder's Equity
Accounts Payable	$       92,950	=185900*50%
Common Shares	$   4,40,000
Retained Earnings	$   1,82,000	=125000+57000
Total Liabilities and Stockholder's Equity	$   7,14,950

Working

	July	August	September
From Accounts Receivable	140000
Sales on account
July	=270000*20%	=270000*80%
August		=290000*20%	=290000*80%
September			=280000*20%
	July	August	September
Expected Sales	270000	290000	280000
Budgeted cost of Goods Sold @65%	=270000*65%	=290000*65%	=280000*65%
Add : Desired Ending Inventory	=188500*30%	=182000*30%	=300000*65%*30%
Total Needs
Less : Beginning Inventory	66000
Required Purchases
	July	August	September
From Accounts Payable	75000
Purchases on account
July	=166050*50%	=166050*50%
August		=186550*50%	=186550*50%
September			=185900*50%
Total Cash Payments	75000	0	0