Question

You have been asked to prepare the monthly cash budget for June and July for the Merchandise and Mercantile Company. The company sells a unique product that is specially made for it by a major product manufacturer. The selling price is $18.00 per unit. All sales are on account.

Merchandise purchases are also on account. The policy of the company is to purchase sufficient quantity of product to ensure that each month’s ending inventory is 50% of the following month’s expected sales quantity.

The assignment file contains extracts from the general journal showing the journal entries pertaining to certain relevant transactions that have occurred and a set of entries the bookkeeper has provided that indicate the transactions expected to occur affecting cash, accounts payable, accounts receivable, and merchandise inventory accounts due to the projected sales revenues and projected merchandise purchases on the master budget. This analysis, with other additional data, is shown below. Assume today is May 31, 20X1, and that all dollar amounts are in thousands of dollars.

Information From Accounting Records and Planning Documents
		Dr	Cr
Extracts From the May 31 Adjusted Trial Balance
May 31	Cash	3,700
	Merchandise inventory	8,400
	Accounts receivable	27,600
	Accounts payable		3,675
Extracts From the General Journal
April 30	Accounts receivable, April sales	34,000
	Revenue		34,000
	Cash	16,660
	Accounts receivable, April sales		16,660
	Bad debt expense, percentage of April sales	1,360
	Allowance for doubtful accounts		1,360
May 31	Accounts receivable, May sales	56,700
	Revenue		56,700
	Cash	41,383
	Accounts receivable, April sales		13,600
	Accounts receivable, May sales		27,783
	Merchandise inventory	14,700
	Accounts payable, May purchases		14,700
	Accounts payable, May purchases	11,025
	Cash, payment May purchases		11,025
Projected Entries to the General Journal for Selected
Anticipated Transactions as per Master Budget
June 30	Accounts receivable, June sales	75,600
	Revenue		75,600
	Cost of sales for June	16,800
	Inventory		16,800
	Accounts payable, May purchases	3,675
	Cash, May purchases		3,675
	Cash	2,380
	Accounts receivable, April sales		2,380
July 31	Accounts receivable, July sales	64,080
	Sales revenue		64,080
August 31	Accounts receivable, August sales	82,080
	Sales revenue		82,080
	Period fixed expenses, August	2,100
	Accumulated depreciation, August		550
	Cash		1,550
	Variable operating expenses (percent of sales)	8,208
	Cash		8,208

Required:

1.	Calculate the cost per unit of merchandise inventory.
Cost Per Unit

     

2.	Prepare a schedule showing the quantity of sales, ending inventory, beginning inventory and the quantity of product purchased in May, June, and July.
	May June July
Sales
Ending Inventory
Beganing Inventory
Purchases
Cost

     

3.	Use the price per unit of inventory purchased and the quantity purchased to determine the expenditure for purchases in May, June, and July.
	May June July
	Cost of purchases

     

4.	Calculate the percentages of sales the company expects to collect in the month of the sale and in the two months following the sale. What is the percentage of uncollectible sales? Assume that the percentages calculated for the month for which data is provided also apply to sales for any month of the year.
	% Collected in april
	%Collected in May
	% collected in June
	% Uncollectable
	Total 100%

     

5.	Calculate the percentages of May and June merchandise purchases the company expects to pay in June.
	MAY JUNE
	Merchandise puerchases % %

6.	Calculate the balance in the accounts receivable on June 30. Assume all receivables are due to sales on account.
	Balance

7.	Calculate the balance in the cash account on June 30, based on the transactions projected to occur in June. Use the collection and disbursement percentages previously calculated. Assume that fixed expenses occur evenly in each month of the year.
	Balance

8.	Prepare a cash budget for July, in good form. Use the collection and disbursement percentages previously calculated. (Amounts to be deducted should be indicated by a minus sign.)
	CASH BUDGET FOR JULY MONTH ENDED JULY 31 20XX
	July cash collections
	July cash disbursements for merchandise purchases
	selling and administartive expenses

Answer 1

Purchase Dalamte in hanc valsts 9 30 calculation of Particulars may June 14700 11025 ass-Am College osoan De cost per unit Amennt Inventory on may 31 *Total Meny ( mer 31 15520 3675 16630 - 60 105 217 TUTOO 3022.0 Tssro $100 ਕੇ = 4 per writ. Com Bolonce. O w30 the loo expect to pay sume aglo in June. la Balance (May 31) Catulation of Quantity (units) (6) Tsdoin The co- expect to pay 20 dus Disement Fred Erp 3615 1590 Ador Account Recoinable 2280 Sales Inventory (End) Inventory Copening Purchase 3150 2100 1575 3675 4200 1780 2100 3880 3560 2280 1780 yobo Formular cash ason June 30 9,55 Sales & closing mventory = opening Inventory + purchase 14900 - 15520 16240 Addi- 23280 cost of Purchase desi- July Cash Collection "640804 36.33.1 July Cash Disbursement [12.150 + $500) 16060 Particulars Sales Collected 1550 Jess de Collected in Collected in Collected in 10.0206 24.880. Fixed Expenses verimble Expenses April May June 34000 56700 75600 166300 16660 41383 2380 60423 6408 Uncollected 63.67 1900 Total.