Question

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Wolfpack Company Balance Sheet June 30
Assets
Cash	$	78,400
Accounts receivable		65,800
Inventory		35,200
Buildings and equipment, net of depreciation		214,000
Total assets	$	393,400
Liabilities and Stockholders’ Equity
Accounts payable	$	60,400
Common stock		100,000
Retained earnings		233,000
Total liabilities and stockholders’ equity	$	393,400

Budgeting Assumptions:

1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.
2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase. The accounts payable at June 30 will be paid in July.
3. The budgeted inventory balance at July 31 is $22,400.
4. Depreciation expense is $4,280 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
5. The company’s cash budget for July shows expected cash collections of $102,700, expected cash disbursements for merchandise purchases of $72,600, and cash paid for selling and administrative expenses of $20,320.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1

Solution 1:

6 8 9 10 11 12 13 a. Budgeted sales for July Expected cash collection during July Less: collection of Accounts receivable at June 30 Collection of July sales in July /% of collection in same month Budgeted sales for July $102,700 $65,800 $36,900 30% $123,000 14 b. Budgeted Merchandise purchases for July 17 18 19 Expected cash disbursement for merchandise purchases Less: Paymeny of Accounts payable at June 30 Collection of July sales in July /% of payment in same month Budgeted Merchandise purchases for July $72,600 $60,400 $12,200 20% $61,000 20 21 24 25 c. Budgeted cost of goods sold for July Budgeted Merchandise purchases for July Add: Inventory at June 30 Total available merchandise for sale Less: budgeted inventory at July 31 Budgeted cost of goods sold $61,000 $35,200 $96,200 $22,400 $73,800 27 28 29 30 31 32 33 34 d. Budgeted Net operating income for July Budgeted sales for July Less: Cost of goods sold Gross profit Less: total selling and administrative expenses (20320 + 4280) Budgeted Net operating income $123,000 $73,800 $49,200 $24,600 $24,600 35 36 37 38 39 40 Sheet29 Sheet181 (29) Sheet181 (30) Sheet578 Sheet31

Solution 2:

10 Amount 11 Balance Sheet- Wolfpack company 31-Jul Particulars Assets: Cash ($78400 + $102700 - $72600 - $20320) Accounts receivables ($123,000*70%) Inventory Buildings and equipment net of depreciation ($214000 - $4280) Total Assets $88,180 $86,100 $22,400 14 15 $209,720 $406,400 16 18 20 Liabilities and stockholder's Equity: Accounts payable ($61000*80%) Common Stock Retained Earnings ($233000 + $ 24600) Total liabilities and stockholders equity $48,800 $100,000 $257,600 $406,400 21 22 23 24 25 26 27 29 30 31 32 33 34 Sheet29 Sheet181 (29) Sheet181 (30) Sheet578 Sheet31