Question

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 65,200 38,800 43,300 125,000 272,300 $ $ 66,200 70,000 136,100 272,300 $ Budgeted Income Statements April Sales $111,000 Cost of goods sold 66,600 Gross margin 44,400 Selling and administrative expenses 23,300 Net operating income $ 21,100 May $121,000 72,600 48,400 24,800 $ 23,600 June $141,000 84,600 56,400 27,800 $ 28,600 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 $151,000. 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 $1,600 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Answer 1

Solution Requirement 1: Deacon Company Schedule of Expected Cash Collections April May June Quarter $66,600 Collection from Cash sales: April ($111,000 x 60%) May ($121,000 x 60%) June ($141,000 x 60%) $72,600 $66,600 $72,600 $84,600 $84,600 | $38,800 $38,800 $8,880 Collection from Accounts receivables: March credit sales - collected in April April credit sales -collected in April ($111,000 x 40% x 20%) - collected in May ($111,000 x 40% x 80%) May credit sales - collected in May ($121,000 x 40% x 20%) - collected in June ($121,000 x 40% x 80%) June credit sales - collected in June ($141,000 x 40% x 20%) Total Cash collection $8,880 $35,520 $35,5201 $9,6801 __$38.720 $38,720 $9,680 $38,720 $11,280 $134,600 $11,280 $366,680 $114,280 $117,800 Requirement 2: June $84,600 Quarter $223,800 Deacon Company Schedule of Budgeted Merchandise Purchase April May Cost of goods sold $66,600 $72,600 Add: Desired ending inventory April ($10,000+ $72,600 x 50%) $46,300 May ($10,000+ $84,600 x 50%) $52,300 June ($10,000+ ($151,000 x 60%) x 50%) Total needs $112,900 $124,900 Less: Likely beginning inventory $43,300 $46,300 Budgeted merchandise purchase $69,600 $78,600 $55,300 $139,900 $52,300 $87,600|_ $55,300 $279,100 $43,300 $235,800 June ending inventory is calculated as under: Cost of Goods sold ratio = $84,600 / $141,000 = July budgeted sales July budgeted cost of goods sold ($151,000 x 60%) June month ending inventory ($10,000+ $90,600 x 50%) 60% $151,000 $90,600 $55,300

Requirement 3: Quarter Deacon Company Schedule of expected cash disbursement for merchandise purchase April May June Cash purchases: April ($69,600 x 10%) $6,960 May ($78,600 x 10%) $7,860 June ($87,600 x 10%) $8,760 Cash paid to Accounts payables: March purchases $66,200 April purchases ($69,600 x 90%) $62,640 May purchases ($78,600 x 90%) $70,740 Budgeted cash paid for merchandise $73,160 $70,500 $79,500 $6,960 $7,860 $8,760 $66,200 $62,640 $70,740 $223,160 Accounts payable as at June 30 = $87,600 x 90% = $78,840 Requirement 4: Deacon Company Budgeted Balance Sheet June 30 Assets Cash (WN-1) Accounts Receivable ($141,000 x 40% x 80%) Inventory Building and equipment, net of depreciation ($125,000 - $1,600 x 3) Total assets $137,620 $45,120 $55,300 $120,200 $358,240 Liabilities and Stockholder's Equity Accounts payable Common stock Retained earnings ($136,100 + $ 21,100 + $ 23,600 + $28,600) Total liabilities and stockholder's equity $78,840 $70,000 $209,400 $358,240 WN-1: Cash balance as at June 30 Beginning cash balance Add: Collection from customer Less: Cash paid for merchandise purchase Less: Selling & administrative expense ($23,300 + $ 24,800 + $ 27,800 - $1,600 x 3) Cash balance at June 30 $ 65,200 $366,680 ($223,160) ($71,100) $137,620