Question

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below: Wheeling Company Balance Sheet September 30 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 62,600 106,000 43,200 235,000 $ 446,800 $ 121,800 216,000 109,000 $ 446,800 The company is in the process of preparing a budget for October and has assembled the following data: 1. Sales are budgeted at $320,000 for October and $330,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month's credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October. 2. The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month's cost of goods sold. 3. All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October. 4. Selling and administrative expenses for October are budgeted at $94,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,350 for the month.

Answer 1

Part 1

Answer 1
Sales	$     320,000
Less: Cash Sales (320000*35%)	$     112,000
Credit sales	$     208,000
Cash collections
From Account receivable	$     106,000
Cash Sales	$     112,000
Collected from Credit Sales of October (208000*40%)	$        83,200
Cash collections	$     301,200
Answer 2
Cost of goods sold (320000*45%)	$     144,000
Add: ending inventory (Cost of Goods sold for Nov = 330000*45%) (148500*30%)	$        44,550
Total needs	$     188,550
Less: beginning inventory	$        43,200
Required inventory purchased	$     145,350
Answer 3
Cash disbursements for merchandise purchases
Account payable	$     121,800
For purchase of October (145350*30%)	$        43,605
Cash disbursements for merchandise purchases	$     165,405
Answer 4
Budgeted net operating income for October
Sales revenue	$     320,000
Less: cost of Goods sold	$     144,000
Gross Profit	$     176,000
Less: Selling and administrative expenses (94200+2350)	$        96,550
Budgeted net operating income	$        79,450
Balance Sheet at October 31
Assets
Cash	$     104,195
Account receivable (208000*60%)	$     124,800
Inventory	$        44,550
Buildings and equipment, net of depreciation (235000-2350)	$     232,650
Total assets	$     506,195
Liabilities and Stockholders’ Equity
Accounts payable (145350*70%)	$     101,745
Common stock	$     216,000
Retained earnings (109000+79450)	$     188,450
Total liabilities and stockholders’ equity	$     506,195
Cash balance beginning	$        62,600
Add: cash collection	$     301,200
Less: paid to suppliers	$   (165,405)
Less: Selling and administrative expenses paid	$     (94,200)
Cash balance ending	$     104,195

Part 2

Answer 1
Sales	$   320,000
Less: Cash Sales (320000*35%)	$   112,000
Credit sales	$   208,000
Cash collections
From Account receivable	$   106,000
Cash Sales	$   112,000
Collected from Credit Sales of October (208000*50%)	$   104,000
Cash collections	$   322,000
Answer 2
Cost of goods sold (320000*45%)	$   144,000
Add: ending inventory (Cost of Goods sold for Nov = 330000*45%) (148500*10%)	$     14,850
Total needs	$   158,850
Less: beginning inventory	$     43,200
Required inventory purchased	$   115,650
Answer 3
Cash disbursements for merchandise purchases
Account payable	$   121,800
For purchase of October (115650*20%)	$     23,130
Cash disbursements for merchandise purchases	$   144,930
Answer 4
Budgeted net operating income for October
Sales revenue	$   320,000
Less: cost of Goods sold	$   144,000
Gross Profit	$   176,000
Less: Selling and administrative expenses (94200+2350)	$     96,550
Budgeted net operating income	$     79,450
Balance Sheet at October 31
Assets
Cash	$   145,470
Account receivable (208000*50%)	$   104,000
Inventory	$     14,850
Buildings and equipment, net of depreciation (235000-2350)	$   232,650
Total assets	$   496,970
Liabilities and Stockholders’ Equity
Accounts payable (115650*80%)	$     92,520
Common stock	$   216,000
Retained earnings (109000+79450)	$   188,450
Total liabilities and stockholders’ equity	$   496,970
Cash balance beginning	$     62,600
Add: cash collection	$   322,000
Less: paid to suppliers	$(144,930)
Less: Selling and administrative expenses paid	$   (94,200)
Cash balance ending	$   145,470