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	$	62,600
Accounts receivable		106,000
Inventory		43,200
Buildings and equipment, net of depreciation		235,000
Total assets	$	446,800
Liabilities and Stockholders’ Equity
Accounts payable	$	121,800
Common stock		216,000
Retained earnings		109,000
Total liabilities and stockholders’ equity	$	446,800

The company is in the process of preparing a budget for October and has assembled the following data:

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.

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.

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.

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.

Required:

1. Using the information provided, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. The budgeted net operating income for October.

e. A budgeted balance sheet at October 31.

2. Assume the following changes to the underlying budgeting assumptions:

(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. Net operating income for the month of October.

e. A budgeted balance sheet at October 31.

Answer 1

112,000 320,000 Part 1: a.Schedule of Expected Cash Collections Cash sales-October (320000*0.35) Collections on account receivable: September 30 balance October sales =320000*(1-0.35)*0.40 Total cash receipts 106,000 83,200 301,200 d.Budgeted income statement sales cost of goods sold Beginning inventory purchases goods available for sale ending inventory cost of goods sold Gross margin selling and administrative expense=94200+2350 net operating income 43,200 145,350 188,550 44,550 144,000 44,550 b.Purchase budget COGS (320000*0.45) Add: ending inventory (330000*0.45*0.3) Total need Less : Beginning Inventory Required Purchase 144,000 176,000 96,550 79,450 188,550 43,200 145,350 C.Schedule of Expected Cash Disbursements September 30 accounts payable balance october purchases =145350*0.30 Total cash payments 121,800 43,605 165,405 e.Budgeted balance sheet Assets cash ** account receivable =320000*(1-0.35) *0.60 inventory building and equipment, net of depreciation (235000-2350) total assets 104,195 124,800 44,550 232,650 **cash balance Beg bal 62,600 Add : cash collection 301,200 Less : cash payment to supplier |- 165,405 Less: S&A expense - 94,200 End bal 104,195 506,195 Liabilities and stockholder equities accounts payable=145350*0.70 common stock retained earning * Total Liabilities and stockholder equities ***Retained earning balance Beg. Bal Add : Net income End bal 109,000 79,450 188,450 101,745 216,000 188,450 506,195 Sheet165 Sheet166 Sheet167Sheet168 Sheet169 Sheet170 Sheet171 Sheet172 Sheet173 1 ENG US 14:21 09/11/2019

112,000 320,000 Part 2: a.Schedule of Expected Cash Collections Cash sales-October (320000*0.35) Collections on account receivable: September 30 balance October sales =320000*(1-0.35)*0.5 Total cash receipts 43.200 106,000 104,000 322,000 115,650 d.Budgeted income statement sales cost of goods sold Beginning inventory purchases goods available for sale ending inventory cost of goods sold Gross margin selling and administrative expense=94200+2350 net operating income 158,850 14,850 144,000 14,850 b.Purchase budget COGS (320000*0.45) Add: ending inventory (330000*0.45*0.1) Total need Less : Beginning Inventory Required Purchase 144,000 176,000 96,550 79,450 158,850 43,200 115,650 e.Budgeted balance sheet Assets C.Schedule of Expected Cash Disbursements September 30 accounts payable balance october purchases =115650*0.20 Total cash payments 121,800 23,130 144,9301 cash ** ** cash balance Beg bal 62,600 Add : cash collection 322,000 Less : cash payment to supplier |- 144,930 Less: S&A expense - 94,200 End bal 145,470 145,470 104,000 14,850 232,650 account receivable =320000*(1-0.35)*0.5 inventory building and equipment, net of depreciation (235000-2350) total assets 496,970 ***Retained earning balance Beg. Bal Add : Net income End bal Liabilities and stockholder equities accounts payable=115650*0.8 common stock retained earning * Total Liabilities and stockholder equities 92.520 109,000 79,450 188,450 216,000 188,450 496,970 Sheet165 Sheet166 Sheet167 Sheet168 Sheet169 Sheet170 Sheet171 Sheet172 Sheet173 ] - ENG 14:21 US 09/11/2019