Question

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Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation Balance Sheet June 30
Assets
Cash	$  75,000
Accounts receivable	140,000
Inventory	66,500
Plant and equipment, net of depreciation	227,000
Total assets	$ 508,500
Liabilities and Stockholders’ Equity
Accounts payable	$  88,000
Common stock	311,000
Retained earnings	109,500
Total liabilities and stockholders’ equity	$ 508,500

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $380,000, $400,000, $390,000, and $410,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $52,000. Each month $7,000 of this total amount is depreciation expense and the remaining $45,000 relates to expenses that are paid in the month they are incurred.

5. 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 stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

   

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

   

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

   

3. Prepare an income statement for the quarter ended September 30.

   

4. Prepare a balance sheet as of September 30.

    

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					140,000			140,000
From July sales		(380,000*35%;65%)			133000	247000		380000
From August sales		(400,000*35%;65%)				140000	260000	400000
From September sales		(390,000*35%)					136500	136500
Total cash collections					273,000	387000	396500	1,056,500
			Accounts receivable 390,000*65%=				253500
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(70% of sales)		266000	280000	273000	819000
Add:Desired ending merchandise inventory					70000	68250	71750	71750
total needs					336000	348250	344750	890750
less: Beginning merchandise inventory					66,500	70000	68250	66,500
Required purchased					269,500	278250	276500	824,250
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					88,000			88,000
From July purchases		(269,500*40%;60%)			107800	161700		269500
From august purchases		(278,250%;60%)				111300	166950	278250
From September purchases			(276500*40%)				110600	110600
total cash disbursements					195,800	273000	277550	746,350
		Accounts payable		276500*60%		165900
3)		Income Statement
	Sales						1170000
	cost of goods sold						819000
	Gross profit						351000
	Selling and administrative expense				(52000*3)		156000
	net operating income						195000
	interest expense						0
	net income (loss)						195000
4)		Balance sheet
	Assets
	Cash						250,150
	Account receivable						253500
	inventory						71750
	Plant and Equipment,net						206000
	Total Assets						781400
	Liabilities and Stockholders Equity
	Accounts payable						165900
	Capital Stock						311,000
	Retained earnings						304500
	Total liabilities & Stockholder's Equity						781400