Question

1. Hamby 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:

Hamby Corporation
Balance Sheet
June 30
Assets
Cash	$	75,000
Accounts receivable		140,000
Inventory		66,500
Plant and equipment, net of depreciation		227,000
Total assets	$	508,500
Liabilities and Stockholders’ Equity
Accounts payable	$	88,000
Common stock		311,000
Retained earnings		109,500
Total liabilities and stockholders’ equity	$	508,500

The company managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $380,000, $400,000, $390,000, and $410,000, 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 70% 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 $52,000. Each month $7,000 of this total amount is depreciation expense and the remaining $45,000 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.

1a. How much is the Company's expected cash collections in the month of August?

1b. How much is the Company's expected cash disbursement for merchandise in the month of July?

1c. How much is the Company's expected merchandise purchases in the month of September?

1d. How much is the Company's expected Net Operating Income for the quarter ending on September 30?

1e. How much is the Company's expected Accounts Receivable balance on September 30?

Answer 1

Ques 1a 387000

ques 1b 195800

aues 1c 276500

ques 1d 195000

ques 1e 253500

working

Ques 1 Month August Sept. July 140,000 Quarter 140,000 $ $ $ 133,000 $ 133,000 247,000 $ 247,000 From accounts receivable From July sales: 380000*0.35 380000*0.65 From August sales: 400000*0.35 400000*0.65 From September sales: 390000*0.35 Total cash collections $ 140,000 $ 260,000 $ 140,000 260,000 $ $ 387,000 $ 136,500 $ 396,500 $ 136,500 1,056,500 $ 273,000 $ Ques 2 Total July 266,000 $ August 280,000 $ Sept. 273,000 $ 819,000 $ Budgeted cost of goods sold (70% of sales) Add desired ending merchandise inventory(25%) Total needs Less beginning merchandise inventory Required purchases $ $ $ S 70,000 336,000 66,500 269,500 $ $ S 68,250 $ 348,250 $ 70,000 $ 278,250 $ 71,750 $ 344,750 $ 68,250 $ 276,500 $ 71,750 890,750 66,500 824,250 for september ending invntory= 410000*0.7*0.25 August $ S July 88,000 107,800 From accounts payable For July purchases For August purchases For September purchases Total cash disbursements $ $ 161,700 111,300 Sept. $ $ 166,950 $ 110,600 $ 277,550 $ Total 88,000 269,500 278,250 110,600 746,350 $ $ S 195,800 $ 273,000 $ Ques 3 Beech Corporation Income Statement For the Quarter Ended September 30 $ $ $ sales (380000+400000+390000) Cost of goods sold (Part 2a) Gross margin Selling and administrative expenses ($45,000 x 3 months) Net operating income Interest expense Net income 1,170,000 819,000 351,000 156,000 195,000 $ $ $ 195,000 Ques 4 Beech Corporation Balance Sheet Sep-30 Assets $ Cash ($75,000 +1056500- $746,350 - ($45,000 x 3)) Accounts receivable ($390,000 x 65%) Inventory (Part 2) Plant and equipment, net ($227,000 - ($7,000 x3)) Total assets $ $ $ $ 250,150 253,500 71,750 206,000 781,400 Liabilities and Stockholders' Equity Accounts payable ($276500 x 60%) Common stock (Given) Retained earnings ($109,500+ $195,000) Total liabilities and stockholders' equity $ $ $ $ 165,900 311,000 304,500 781,400