Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available Deacon Company Balance Sheet March 31 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 $ 61,400 32,400 58,300 148,000 $ 300, 100 $ 105,100 70,000 125,000 $ 300,100 May June Budgeted Income Statements April Sales $ 161,000 Cost of goods sold 96,600 Gross margin 64,400 Selling and administrative expenses 18,300 Net operating income $ 46,100 102,600 68,400 19,800 $ 48,600 114,600 76,400 22,800 $ 53,600 Budgeting Assumptions: a. 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale. b. Budgeted sales for July are $201,000. c. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April. d. Each month's ending merchandise inventory should equal $10,000 plus 50% of the next month's cost of goods sold. e. Depreciation expense is $1,200 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Answer 1

Solution Requirement 1: Deacon Company Schedule of Expected Cash Collections April May June Quarter $96,600 Collection from Cash sales: April ($161,000 x 60%) May ($171,000 x 60%) June ($191,000 x 60%) $102,600 $96,600 $102,600 $114,600 $114,600 $32,400 $32,400 $12,880 $12,880 $51,520 $51,5201 Collection from Accounts receivables: March credit sales - collected in April April credit sales - collected in April ($ 161,000 x 40% x 20%) - collected in May ($161,000 x 40% x 80%) May credit sales - collected in May ($171,000 x 40% x 20%) - collected in June ($171,000 x 40% x 80%) June credit sales - collected in June ($191,000 x 40% x 20%) Total Cash collection $13,680 $54,720 $13,680 $54,720 $15,2801 $184,600 $15,280 $494,280 $141,880 $167,800 Requirement 2: lune Quarter $114,600 $313,800 Deacon Company Schedule of Budgeted Merchandise Purchase April May Cost of goods sold $96,600 $102,600 Add: Desired ending inventory April ($10,000 + $ 102,600 x 50%) $61,300 May ($10,000+ $114,600 x 50%) $ 67,300 June ($10,000+ ($ 201,000 x 60%) x 50%) Total needs $157,900 $169,900 Less: Likely beginning inventory $58,300 $61,300 Budgeted merchandise purchase $99,600 $108,600 $70,300] $184,900 $67,300|| $117,600|_ $70,300 $384,100 $58,300 $325,800 June ending inventory is calculated as under: Cost of Goods sold ratio = $114,600 / $191,000 = July budgeted sales July budgeted cost of goods sold ($ 201,000 x 60%) June month ending inventory ($10,000+ $120,600 x 50%) 60% $201,000 $120,600 $70,300

Requirement 3: Quarter Deacon Company Schedule of expected cash disbursement for merchandise purchase April May June Cash purchases: Tem con100) April ($99,600 x 10%) $9,960 May ($108,600 x 10%) $10,860 June ($117,600 x 10%) $11,760 Cash paid to Accounts payables: March purchases $105,100 April purchases ($99,600 x 90%) $89,640 May purchases ($108,600 x 90%) $97,7401 Budgeted cash paid for merchandise $115,060 $100,500 $109,500 $9,960 $10,860 $11,760 $105,100 $89,640 $97,740 $325,060 Accounts payable as at June 30 = $117,600 x 90% = $105,840 Requirement 4: Deacon Company Budgeted Balance Sheet June 30 Assets Cash (WN-1) Accounts Receivable ($191,000 x 40% x 80%) Inventory Building and equipment, net of depreciation ($148,000 - $1,200 x 3) Total assets $173,320 $61,120 $70,300 $144,400 $449,140 Liabilities and Stockholder's Equity Accounts payable Common stock Retained earnings ($125,000+ $46,100 + $ 48,600 + $53,600) Total liabilities and stockholder's equity $105,840 $70,000 $273,300 $449,140 WN-1: Cash balance as at June 30 Beginning cash balance Add: Collection from customer Less: Cash paid for merchandise purchase Less: Selling & administrative expense ($18,300 + $ 19,800 + $ 22,800 - $1,200 x 3) Cash balance at June 30 $61,400 $494,280 ($325,060) ($57,300) $173,320