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	$	81,600
Accounts receivable		59,600
Inventory		42,800
Buildings and equipment, net of depreciation		152,000
Total assets	$	336,000
Liabilities and Stockholders’ Equity
Accounts payable	$	57,000
Common stock		100,000
Retained earnings		179,000
Total liabilities and stockholders’ equity	$	336,000

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 $24,500.
4. Depreciation expense is $3,040 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 $92,000, expected cash disbursements for merchandise purchases of $66,300, and cash paid for selling and administrative expenses of $18,560.

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

1A. Budgeted sales-

Particulars	Amount ($)
Expected cash collection in July	92,000
Less: June's Accounts receivable	(59,600)
Cash collection of July Sales	32,400
30% of July Total Sales	32,400
Total Sales of July month (32,400/30%)	108,000

1B. Budgeted merchandise purchases

Particulars	Amount ($)
Expected cash disbursement in July for Merchandise	66,300
Less: June's Accounts payable	(57,000)
Cash disbursement of July Merchandise purchases	9,300
20% of July Total Merchandise purchases	9,300
Total Merchandise purchases of July month (9,300/20%)	46,500

1C. Budgeted Cost of goods sold = Inventory used to make July Sales.

= Opening balance of Inventory + Inventory Purchased in July - Closing balance of Inventory on July 31

= 42,800 + 46,500 - 24,500 = 64,800

1D. Budgeted net operating income

Particulars	Amount ($)
Sales	108,000
Less: Cost of goods sold	64,800
Gross Profit	43,200
Less: Expenses -
Selling and Administrative expense	18,560
Depreciation	3,040
Net Operating Income	21,600

2. Budgeted balance sheet

	Amount ($)
Assets
Cash (81,600+92,000-66,300-18,560)	88,740
Accounts receivable (108,000*70%)	75,600
Inventory	24,500
Building & Equipment (152,000-3,040)	148,960
Total assets	337,800
Liabilities and Shareholder's Equity
Accounts payable (46,500*80%)	37,200
Common stock	100,000
Retained earnings (179,000+21,600)	200,600
Total liabilities and Shareholder's Equity	337,800