Question

Following information relates to Acco Co. a. Beginning cash balance on July 1: $50,000. b. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are May (actual), $1,720,000; June (actual), $1,200,000; and July (budgeted), $1,400,000. c. Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $700,000; and July (budgeted), $750,000. d. Budgeted cash payments for salaries in July: $275,000. e. Budgeted depreciation expense for July: $36,000. f. Other cash expenses budgeted for July: $200,000. g. Accrued income taxes due in July: $80,000. h. Bank loan interest paid in July: $6,600. Additional Information: a. Cost of goods sold is 55% of sales. b. Inventory at the end of June is $80,000 and at the end of July is $60,000. c. Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31. d. The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000. e. The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000. f. Income taxes payable on July 31 are $30,720, and the income tax rate is 30%. g. The only other balance sheet accounts are common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30. Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

Answer 1

Calculation of Cash Receipts From Sales
		------------------Collected in-------------------			July 31
	Total Sales	May	June	July	Accounts Rec.
Credit sales from:
May(30%/50%/20%)	$       1,720,000	$            516,000	$           860,000	$              344,000	$                          -
June(30%/50%/20%)	$       1,200,000		$           360,000	$              600,000	$              240,000
July(30%/50%+20%)	$       1,400,000			$              420,000	$              980,000
Totals	$       4,320,000	$            516,000	$       1,220,000	$          1,364,000	$           1,220,000
Calculation of Cash Payments for Merchandise
		------------------Paid in-------------------		July 31
	Total Purchases	June	July	Accounts Pay.
Purchases from:
June(60%,40%)	$           700,000	$            420,000	$           280,000	$                          -
July(60%,40%)	$           750,000		$           450,000	$              300,000
Totals	$       1,450,000	$            420,000	$           730,000	$              300,000
ACCO COMPANY
Budgeted Income Statement
For Month Ended July 31
Sales		1,400,000.00
Cost of goods sold(1400000*55%)		770,000
Gross profit		630,000
Operating expenses
Salaries expense(60000+275000-50000)	285,000
Depreciation expense	36,000
Other cash expenses	200,000
Bank loan interest expense	6,600
Total operating expenses		527,600
Income before taxes		102,400
Income tax expense		30,720
Net income		$71,680
ACCO COMPANY
Budgeted Balance Sheet
As of July 31
Assets
Cash	$122,400
Accounts receivable	1,220,000
Inventory	60,000
Total current assets		1,402,400
Equipment	1,600,000
Accumulated depreciation(280000+36000)	316,000
Equipment, net		1,284,000
Total assets		$2,686,400
Liabilities and Equity
Liabilities
Accounts payable	300,000
Salaries payable	60,000
Income taxes payable	30,720
Total current liabilities		390,720
Bank loan payable		660,000
Total liabilities		1,050,720
Stockholders' Equity
Common stock	600,000
Retained earnings(750400+245882)	1,035,680
Total Stockholders' equity		1,635,680
Total Liabilities and Equity		$2,686,400

working:

ACCO COMPANY
Cash Budget
For the Month Ended July 31
Beginning cash balance	$50,000
Cash receipts from sales	1,364,000
Total cash available		$1,414,000
Cash disbursements:
Payments for merchandise	730,000
Salaries	275,000
Other expenses	200,000
Accrued taxes	80,000
Interest on bank loan	6,600
Total cash disbursements		1,291,600
Ending cash balance		$122,400