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	$	72,000
Accounts receivable		128,000
Inventory		60,900
Plant and equipment, net of depreciation		218,000
Total assets	$	478,900
Liabilities and Stockholders’ Equity
Accounts payable	$	79,000
Common stock		308,000
Retained earnings		91,900
Total liabilities and stockholders’ equity	$	478,900

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

1. Estimated sales for July, August, September, and October will be $290,000, $310,000, $300,000, and $320,000, 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 30% 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 $54,000. Each month $5,000 of this total amount is depreciation expense and the remaining $49,000 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.

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.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

	Beech Company
	Sales Revenue
	Month	July	August	September	Quarter
	Sales	$             2,90,000.00	$   3,10,000.00	$   3,00,000.00	$     9,00,000.00
		Beech Company
		Schedule of Expected cash collection
1)	Month	July	August	September	Quarter
	Accounts Receivable(As per balance sheet)	$             1,28,000.00			$     1,28,000.00
	($290000*35%) in July and ($290000*65%) in August	$             1,01,500.00	$   1,88,500.00		$     2,90,000.00
	($310000*35%) in August and ($310000*65%) in September		$   1,08,500.00	$   2,01,500.00	$     3,10,000.00
	($300000*35%) in September			$   1,05,000.00	$     1,05,000.00
	Total Cash Collection	$             2,29,500.00	$   2,97,000.00	$   3,06,500.00	$     8,33,000.00
	Month	Sales	Cost of goods sold=(70% of Sales)
	July	$             2,90,000.00	$   2,03,000.00
	August	$             3,10,000.00	$   2,17,000.00
	September	$             3,00,000.00	$   2,10,000.00
	October	$             3,20,000.00	$   2,24,000.00
		Beech Company
		Merchandise Purchase Budget
2a)	Month	July	August	September	Quarter
	Budgeted cost of goods sold	$             2,03,000.00	$   2,17,000.00	$   2,10,000.00	$     6,30,000.00
	Add: Ending Inventory=($217000*30%) in July,(210000*30%) in August,($224000*30%) in September	$                 65,100.00	$       63,000.00	$      67,200.00	$        67,200.00
	Total Needs	$             2,68,100.00	$   2,80,000.00	$   2,77,200.00	$     6,97,200.00
	Less: Beginning Inventory	$                 60,900.00	$       65,100.00	$      63,000.00	$        60,900.00
	Required Purchases	$             2,07,200.00	$   2,14,900.00	$   2,14,200.00	$     6,36,300.00
	Beech Company
2b)		Schedule of Cash Disbursement for Purchases
	Month	July	August	September	Quarter
	Accounts Payable(As per Balance sheet)	$                 79,000.00			$        79,000.00
	($207200*40%)in July and ($207400*60%) in August	$                 82,880.00	$   1,24,320.00		$     2,07,200.00
	($214900*40%) in August and ($214900*60%) in September		$       85,960.00	$   1,28,940.00	$     2,14,900.00
	($214200*40%) in September			$      85,680.00	$        85,680.00
		$             1,61,880.00	$   2,10,280.00	$   2,14,620.00	$     5,86,780.00
3)	Beech Company
	Income Statement
	Sales	$             9,00,000.00
	Cost of goods sold	$             6,30,000.00
	Gross Profit=($900000-$630000)	$             2,70,000.00
	Selling and Administrative Expenses=($54000*3)	$             1,62,000.00
	Net Income	$             1,08,000.00
	Beech Company
	Cash Balance
	Beginning Cash	$                 72,000.00
	Amount collected from customers	$             8,33,000.00
	Total Cash Available	$             9,05,000.00
	Amount paid for raw material purchase	$             5,86,780.00
	Selling & Administrative Expenses($54000-$5000)*3	$             1,47,000.00
	Cash Balance at the Year End	$             1,71,220.00
4)	Beech Company
	Balance Sheet
	September 30th
	Assets
	Cash	$             1,71,220.00
	Accounts Receivable($300000*65%)	$             1,95,000.00
	Inventory	$                 67,200.00
	Plant,Equipment,net=($218000-($5000*3))	$             2,03,000.00
	Total Assets	$             6,36,420.00
	Liabilities & Stockholder's Equity
	Accounts Payable($214200*60%)	$             1,28,520.00
	Common Stock(As Per Balance sheet)	$             3,08,000.00
	Retained Earnings($91900+$108000)	$             1,99,900.00
	Total Liabilities and Stockholder's Equity	$             6,36,420.00