Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Deacon Company Balance Sheet March 31
Assets
Cash	$	60,200
Accounts receivable		30,800
Inventory		60,400
Buildings and equipment, net of depreciation		124,000
Total assets	$	275,400
Liabilities and Stockholders’ Equity
Accounts payable	$	71,100
Common stock		70,000
Retained earnings		134,300
Total liabilities and stockholders’ equity	$	275,400

Budgeted Income Statements
	April			May			June
Sales	$	168,000		$	178,000		$	198,000
Cost of goods sold		100,800			106,800			118,800
Gross margin		67,200			71,200			79,200
Selling and administrative expenses		22,400			23,900			26,900
Net operating income	$	44,800		$	47,300		$	52,300

Budgeting Assumptions:

1. 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

2. Budgeted sales for July are $208,000.

3. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.

4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

5. Depreciation expense is $1,100 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

Calculate the expected cash collections for April, May, and June.

	April May June Quarter Total cash collections

Answer 1

Solution 1:

Schedule of expected cash collection - Deacon company
Particulars	April	May	June	Quarter
Accounts Receivables from March	$30,800.00			$30,800.00
Cash sales (Sales*60%)	$1,00,800.00	$1,06,800.00	$1,18,800.00	$3,26,400.00
Cash received for April credit Sale	$13,440.00	$53,760.00		$67,200.00
Cash received for May credit Sale		$14,240.00	$56,960.00	$71,200.00
Cash received for June credit Sale			$15,840.00	$15,840.00
Budgeted Cash Collection	$1,45,040.00	$1,74,800.00	$1,91,600.00	$5,11,440.00

Solution 2:

Merchandise Purchase Budget - Deacon Company
Particulars	April	May	June	Total
Cost of Sales (60% of Sales)	$1,00,800.00	$1,06,800.00	$1,18,800.00	$3,26,400.00
Add: Desired ending inventory ($10000+50% of COGS of next month)	$63,400.00	$69,400.00	$72,400.00	$72,400.00
Less: Opening Inventory	$60,400.00	$63,400.00	$69,400.00	$60,400.00
Budgeted purchases (in dollars)	$1,03,800.00	$1,12,800.00	$1,21,800.00	$3,38,400.00

Solution 3:

Schedule of expected cash disbursement for merchandise purchases - Deacon Company
Particulars	April	May	June	Quarter
Payables from March	$71,100.00			$71,100.00
July Purchases	$10,380.00	$93,420.00		$1,03,800.00
August Purchases		$11,280.00	$1,01,520.00	$1,12,800.00
September Purchases			$12,180.00	$12,180.00
Total payments in month	$81,480.00	$1,04,700.00	$1,13,700.00	$2,99,880.00

Solution 4:

Balance Sheet- Deacon Company
31-June
Particulars	Amount
Assets:
Cash ($60200 + $511440 - $299880 - $22400-23900-26900+1100*3)	$2,01,860.00
Accounts receivables ($198,000*40%*80%)	$63,360.00
Inventory	$72,400.00
Buildings and equipment net of depreciation ($124,000 - $1100*3)	$1,20,700.00
Total Assets	$4,58,320.00
Liabilities and stockholder's Equity:
Accounts payable ($121800*90%)	$1,09,620.00
Common Stock	$70,000.00
Retained Earnings ($134300 + $44800+47300+52300)	$2,78,700.00
Total liabilities and stockholders equity	$4,58,320.00