Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

• Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January.
• Collections are expected to be 75% in the month of sale and 25% in the month following the sale.
• The cost of goods sold is 70% of sales.
• The company desires an ending merchandise inventory equal to 85% of the cost of goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $20,000.
• Monthly depreciation is $19,800.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	20,800
Accounts receivable		81,800
Merchandise inventory		214,200
Property, plant and equipment (net of $584,000 accumulated depreciation)		994,000
Total assets	$	1,310,800
Liabilities and Stockholders' Equity
Accounts payable	$	194,800
Common stock		490,000
Retained earnings		626,000
Total liabilities and stockholders' equity	$	1,310,800

Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Answer 1

. Schedule of Expected Cash collection
Here Sales collections term is 75% of sales to be collected in the same month and 25% in following month .
Hence ,
Expected collection of November =
Accounts receivable of Oct to be collected on November = $81800
Sales collection in November ($360000 x 75%) =$270000
Total$351800
and Expected collections of December =
November sales to be collected on December =$90000
($360,000 x 25%)
Sales collection in December ($380000 x 75%) =$285000
Total Collections $375000
Hence ,
	November	December
Sales	$360,000	$380,000
Schedule of Expected cash collection
Accounts Receivable	$81,800
November sales	$270,000	$90,000
December Sales		$285,000
Total Collections	$351,800	$375,000
b.
Here , cost of goods sold is 70% of sales and ending inventory is 85% of cost of goods sold of following months
Hence , Cost of Goods sold for November = $360,000 x 70 % = $252000
Cost of Goods sold for December = $380000x 70% =$266000
Cost of Goods sold for January = $370,000 x 70% =$259000
Hence,
Ending inventory of November = Cost of goods sold Dec x 85% = $266000 x 85% =$226100
Ending inventory of December = Cost of goods sold of Jan x 85% =$259000 x 85% =$220150
Hence,
Purchase Budget
	November	December
Cost of Goods Sold	252000	266000
Add : Ending Inventory	226100	220150
Total	478100	486150
Less : Beginning Inventory	214200	226100
Total Purchase	263900	260050
c.
	November	December
Beginning Cash Balance	$20,800	157800
Add : Cash Receipts
From Customer	$351,800	$375,000
Total	372600	532800
Less :Cash Payment
Purchase payment	$194,800	$263,900
Other Monthly Expenses	$20,000	$20,000
Total Payment	214800	283900
Ending Cash Balance	157800	248900
Working Notes : -
Terms of purchase payment is current month payment in next month
Hence , payment in November = Accounts payable of Oct = $194800
Payment in December = Purchase of November = $ 263900(refer purchase budget).
d. We will prepare the income statement base data calculated above.
Budgeted Income statement
	November	December
Sales Revenue	$ 3,60,000	$ 3,80,000
Cost of Goods sold	252000	266000
Gross Profit	$108,000	114000
Operating Expenses
Other monthly expenses	$20,000	$20,000
Depreciation	$19,800	$19,800
Total Operating Expenses	$39,800	$39,800
Net Income	$68,200	$74,200
e.
Budgetted Balance Sheet
	November	December
Assets
Cash	157800	248900
Accounts Receivable	$90,000	$95,000
Inventory	226100	220150
Property plant , equipment	974200	954400
Total Assets	1448100	1518450
Liabilities and stockholders equity
Accounts payable	263900	260050
Common Stock	490000	490000
Retained earnings	694200	768400
Total Liabilities and stockholders equity	1448100	1518450
Note :-
Accounts receivable 25% of current month sales as per question
Accounts payable purchase of current month
Retained earning = (Opening balance + Net income )
Hence November retained earnings = ($626000+$68200)= $694200
December retained earnings = $694200 + $74200 =$768400
November Property ,plant equipment = ($994000- Depreciation) = ($994000-$19800)=$974200
December Property ,plant equipment = ($974200-$19800)= $954400