Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

• Sales are budgeted at $390,000 for November, $410,000 for December, and $400,000 for January.
• Collections are expected to be 80% in the month of sale and 20% in the month following the sale.
• The cost of goods sold is 73% of sales.
• The company desires an ending merchandise inventory equal to 80% of the cost of goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $20,900.
• Monthly depreciation is $20,700.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	21,700
Accounts receivable		82,700
Merchandise inventory		227,760
Property, plant and equipment (net of $593,000 accumulated depreciation)		1,003,000
Total assets	$	1,335,160
Liabilities and Stockholders' Equity
Accounts payable	$	195,700
Common stock		580,000
Retained earnings		559,460
Total liabilities and stockholders' equity	$	1,335,160

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Answer 1

Sales Budget
	November	December
Sales	390000	410000
Schedule of Expected Cash Collections
	November	December
Cash Sales	3,12,000	3,28,000
Credit Sales	82,700	78,000
Total Cash Collections	3,94,700	4,06,000
Merchandise Purchases Budget
	November	December
Budget Cost of Goods Sold	2,84,700	2,99,300
Add Desired Ending Inventory	239440	233600
Total Needs	5,24,140	5,32,900
Less Beginning Inventory	2,27,760	239440
Required Purchases	2,96,380	2,93,460
January Sales× 73% cost Ratio× 80% = $224960
Schedule of Expected Cash Disbursements
	November	December
October purchases	1,95,700
November purchases		2,96,380
December purchases
Total Cash Disbursement for Purchases	1,95,700	2,96,380
Cash Budget
	November	December
Cash Balance Beginning	21,700	1,99,800
Add Cash Collections	3,94,700	4,06,000
Total Cash Available	4,16,400	6,05,800
Less Cash Disburtments:
Inventory Purchases	1,95,700	2,96,380
Expenses	20,900	20,900
Total Cash Disbursement	2,16,600	3,17,280
Excess (deficiency) of cash	1,99,800	2,88,520
Financing:
Borrowings
Repayments
Interest
Total Financing	0
Cash Balance, Ending	1,99,800	2,88,520
Income tax expense
Welnor Industrial gas corporation
Income Statement
		November		December
Sales		3,90,000		410000
Cost Of Goods Sold:
Beginning Inventory	2,27,760		2,39,440
Add Purchase	2,96,380		293460
Goods Available for Sale	5,24,140		5,32,900
Ending Inventory	2,39,440	2,84,700	233600	2,99,300
Gross Margin		1,05,300		1,10,700
Less:- expenses	20900		20900
Depreciation	20,700		20700
Other Expenses
		41,600		41,600
Net Operating Income		63,700		69,100
Balance Sheet
Dec-31
Assets
Current Assets:
Cash		2,88,520
Accounts Receivable ( 410000 * 0.2 )		82,000
Inventory		2,33,600
Total Current Assets		6,04,120
Buildings and Equipment, Net
1003000 - 20700-20700		9,61,600
Total Assets		15,65,720
Liabilities and Equity
Current Liabilities
Accounts Payable		293460
StockHolder's Equity:
Capital Stock	580000
Retained Earnings ( 559460 + 63700 + 69100)	6,92,260	12,72,260
Total Liabilities and Equity		15,65,720