Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10]

[The following information applies to the questions displayed below.]

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	$	91,000
Accounts receivable		133,000
Inventory		36,000
Plant and equipment, net of depreciation		213,000
Total assets	$	473,000
Liabilities and Stockholders’ Equity
Accounts payable	$	74,000
Common stock		328,000
Retained earnings		71,000
Total liabilities and stockholders’ equity	$	473,000

Exercise 8-12

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

1. Estimated sales for July, August, September, and October will be $240,000, $260,000, $250,000, and $270,000, 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 25% of the cost of next month’s sales. The cost of goods sold is 60% 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 $44,000. Each month $8,000 of this total amount is depreciation expense and the remaining $36,000 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 for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.
Req 1 Req 2A Req 2B Req 3 Req 4 Prepare a schedule of expected cash collections for July, August, and September. Schedule of Expected Cash Collections Month July AugustSeptember Quarter From July sales From August sales From September sales Total cash collections Req 1 Req 2A

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					133,000			133,000
From July sales		(240,000*35%;65%)			84000	156000		240000
From August sales		(260,000*35%;65%)				91000	169000	260000
From September sales		(250,000*35%)					87500	87500
Total cash collections					217,000	247000	256500	720,500
			Accounts receivable 250,000*65%=				162500
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(60% of sales)		144000	156000	150000	450000		162000
Add:Desired ending merchandise inventory					39000	37500	40500	40500
total needs					183000	193500	190500	490500
less: Beginning merchandise inventory					36,000	39000	37500	36,000
Required purchased					147,000	154500	153000	454,500
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					74,000			74,000
From July purchases		(14700*40%;60%)			58800	88200		147000
From august purchases		(154500*40%;60%)				61800	92700	154500
From September purchases			(153000*40%)				61200	61200
total cash disbursements					132,800	150000	153900	436,700
		Accounts payable		153000*60%		91800
3)		Income Statement
	Sales						750000
	cost of goods sold		(750,000*60%)				450000
	Gross profit						300000
	Selling and administrative expense				(44000*3)		132000
	net operating income						168000
	interest expense						0
	net income (loss)						168000
4)		Balance sheet
	Assets
	Cash		(91000+720500-436700-36000*3)				266,800
	Account receivable						162500
	inventory						40500
	Plant and Equipment,net			(213000-8000*3)			189000
	Total Assets						658800
	Liabilities and Stockholders Equity
	Accounts payable						91800
	Capital Stock						328,000
	Retained earnings						239000
	Total liabilities & Stockholder's Equity						658800