Question

Required information (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 Accounts receivable Inventory Plant and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 96,000 139,000 70, 200 228,000 $ 533,200 $ 89,000 333,000 111,200 $ 533,200 Beech's managers have made the following additional assumptions and estimates: 1. Estimated sales for July, August, September, and October will be $390,000, $410,000, $400,000, and $420,000, 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 30% 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 $54,000. Each month $7,000 of this total amount is depreciation expense and the remaining $47,000 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 that computes net operating income for the quarter ended September 30. 4. Prepare a balance sheet as of September 30.

Answer 1

1.

Cash collections schedule
	July	August	September	Quarter
Accounts Receivable, June 30	$       139,000			$        139,000
From July Sales	$       136,500	$       253,500		$        390,000
From Aug Sales		$       143,500	$        266,500	$        410,000
From Sep Sales			$        140,000	$        140,000
Total Cash Collections	$       275,500	$       397,000	$       406,500	$    1,079,000

2a.

Merchandise Purchases Budget
	July	August	September	Quarter
Budgeted cost of goods sold	$       234,000	$       246,000	$        240,000	$        720,000
Add desired ending inventory	$         73,800	$          72,000	$          75,600	$          75,600
Total needs	$       307,800	$       318,000	$        315,600	$        795,600
Less beginning inventory	$         70,200	$          73,800	$          72,000	$          70,200
Required purchases	$       237,600	$       244,200	$       243,600	$        725,400

2b.

Schedule of Expected Cash Disbursements for Merchandise Purchases
	July	August	September	Quarter
Accounts Payable, June 30	$         89,000			$          89,000
From July Purchases	$         95,040	$       142,560		$        237,600
From Aug Purchases		$          97,680	$        146,520	$        244,200
From Sep Purchases			$          97,440	$          97,440
Total cash disbursements for purchases	$       184,040	$       240,240	$       243,960	$        668,240

3.

Income Statement
Sales Revenue	$    1,200,000
Cost of Goods sold	$       720,000
Gross Profit	$       480,000
Selling and administrative expenses	$       162,000
Net Income	$       318,000

4.

Balance Sheet
Assets
Cash	$       365,760
Accounts Receivable	$       260,000
Inventory	$         75,600
Plant and Equipment, net of depreciation	$       207,000
Total Assets	$       908,360
Liabilities & Stockholder's Equity
Accounts Payable	$       146,160
Common Stock	$       333,000
Retained Earnings	$       429,200
Total Liabilities & Stockholder's Equity	$       908,360

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