Question

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

• Sales are budgeted at $380,000 for November, $400,000 for December, and $390,000 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 72% 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 $21,000.
• Monthly depreciation is $20,800.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	21,800
Accounts receivable		82,800
Merchandise inventory		232,560
Property, plant and equipment (net of $608,000 accumulated depreciation)		1,018,000
Total assets	$	1,355,160
Liabilities and Stockholders' Equity
Accounts payable	$	195,800
Common stock		590,000
Retained earnings		569,360
Total liabilities and stockholders' equity	$	1,355,160

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

WELLER INDUSTRIAL GAS CORPORATION Schedule of Expected Cash Collections November December Sales 380000 400000 Schedule of Expected Cash Collections Accounts receivable 82800 November sales 285000 95000 December sales 300000 Total cash collections 36 7800 395000 WELLER INDUSTRIAL GAS CORPORATION Merchandise Purchases Budget November December Budgeted cost of goods sold 273600 288000 Add desired ending merchandise inventory 244800 238680 Total needs 518400 526680 Less Beginning merchandise inventory 232560 244800 Required purchase 285840281880 December Ending Inventory = 85% * 72% * January Sales

WELLER INDUSTRIAL GAS CORPORATION Cash Budget November December Cash disbursements for Merchandise 195800 285840 Other monthly cash expenses 21000 21000 Total cash disbursements 216800 306840 Cash balance, beginning 21800 172800 Add cash receipts 367800 395000 Total Cash available 389600 56 7800 Less cash disbursement 216800 306840 Excess (deficiency) of cash available over 172800 260960 disbursements Financing Cash balance, ending 172800 260960 WELLER INDUSTRIAL GAS CORPORATION Budgeted Income Statement November December Sales 380000 400000 Bad debt expense Cost of goods sold 273600 288000 Gross margin 106400 112000 Other monthly expenses 21000 21000 Depreciation 20800 20800 Net operating income 64600 70200

WELLER INDUSTRIAL GAS CORPORATION Balance Sheet December 31 Assets Cash 260960 Accounts Receivable 100000 Inventory 238680 Property, plant and equipment 976400 Total assets 1576040 Liabilities and Stockholders' Equity Accounts payable 281880 Common stock 590000 Retained earnings 704160 Total Liabilities and Stockholders' Equity 1576040