Question

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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 Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity 73,600 39,600 66,700 192,000 $ 371,900 $ 167,300 70,000 134,600 $ 371,900 Budgeted Income Statements April Sales $189,000 Cost of goods sold 113,400 Gross margin 75,600 Selling and administrative expenses 19,900 Net operating income $ 55,700 May $199,000 119,400 79,600 21,400 $ 58,200 June $219,000 131,400 87,600 24,400 $ 63,200 Budgeting Assumptions: a. 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. b. Budgeted sales for July are $229,000. c. 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. d. Each month's ending merchandise inventory should equal $10,000 plus 50% of the next month's cost of goods sold. e. Depreciation expense is $1,650 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Answer 1

Requirement 1.
Expected Cash collection
For the month of April, May and June
	April	May	June
Sales	189,000	199,000	219,000
Cash Sales (60% of Sales)	$113,400	$119,400	$131,400
	($189,000 * 60%)	($199,000 * 60%)	($219,000 * 60%)
Collections from credit sales for the month:
March	$39,600
(Accounts Receivable opening balance)
April	$15,120	$60,480
($189,000 * 40% * 20%)	($189,000 * 40% * 80%)
May		$15,920	$63,680
	($199,000 * 40% * 20%)	($199,000 * 40% * 80%)
June			$17,520
		($219,000 * 40% * 20%)
Total Cash Collection	$168,120	$195,800	$212,600

Requirement 2.
Budegeted Merchandise Purchase
For the month of April, May and June
	April	May	June
Cost of Goods Sold	$113,400	$119,400	$131,400
Add: Ending inventory	$69,700	$75,700	$78,700
=$10,000+($119,400 * 50%)	=$10,000+($131,400 * 50%)	=$10,000+($229,000 * 60% * 50%)
Total Inventory Required	$183,100	$195,100	$210,100
Less: Beginning Inventory	$66,700	$69,700	$75,700
(Given)	(Last month ending inventory)	(Last month ending inventory)
Material to be purchased	$116,400	$125,400	$134,400

Requirement 3.
Expected Cash Disbursement of Merchandise Purchases
For the month of April, May and June
	April	May	June
Material to be Purchased	$116,400	$125,400	$134,400
Cash Purchases (10% of Total Purchaes)	$11,640	$12,540	$13,440
Cash Paid for the month:
March	$167,300
(Given)
April		$104,760
	($116,400 * 90%)
May			$112,860
		($125,400 * 90%)
Total Cash Disbursement	$178,940	$117,300	$126,300

Requirement 4
Budgeted Balance Sheet
As on 30th June
Assets
Cash	$166,830
Accounts Receivable	$70,080
Inventory	$78,700
Building and equipment, net of deprecation	$187,050
Total Assets	$502,660
Liabilities and Stockholder's Equity
Accounts Payable	$120,960
Common Stock	70000
Retained Earnings	311700
Total Liabilities and Stockholder's Equity	$502,660