Question

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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	$	86,000
Accounts receivable		138,000
Inventory		75,000
Plant and equipment, net of depreciation		229,000
Total assets	$	528,000
Liabilities and Stockholders’ Equity
Accounts payable	$	90,000
Common stock		351,000
Retained earnings		87,000
Total liabilities and stockholders’ equity	$	528,000

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $400,000, $420,000, $410,000, and $430,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $56,000. Each month $8,000 of this total amount is depreciation expense and the remaining $48,000 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.

Prepare a balance sheet as of September 30.

	Beech Corporation Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net 0 0 Total assets $0 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings 0 0 Total liabilities and stockholders' equity $0

Answer 1

Working Note

Calculation of Retained Earnings for the Quarter
	July	Aug	Sep	Total
Sales	400000	420000	410000	1230000
COGS (70%)	-280000	-294000	-287000	-861000
Depreciation	-8000	-8000	-8000	-24000
other expenses	-48000	-48000	-48000	-144000
Retained earnings	64000	70000	67000	201000

Accounts Receivable = 55% of 410,000 = 225500

Calculation on Inventory as on 30th Sep
October Sales	430000
COGS (70%)	301000
Inventory (15% of COGS)	45150

Calculation of Inventory Purchased = COGS-Opening Bal + Closing Bal

	Jul	Aug	Sep	Oct
Opening Bal	75000	44100	43050
COGS	280000	294000	287000	301000
Closing Balance (15%of Next month COGS)	44100	43050	45150
Inventory Purchases	249100	292950	289100

Calculation of Cash Balance as on 30th Sep
Opening Cash Balance as on 30th Jun	86000
Collection from Sales (138000 + 400000+420000+(410000*45%)	1142500
Payment for merchandise purchases (90,000 + 249100 + 292950 + (289100*30%)	-718780
Other Expenses	-144000
Closing Cash Balance	365720

Final Answer

Assets
Cash	365,720
Accounts receivable	225,500
Inventory	45,150
Plant and equipment, net of depreciation	205,000
Total assets	841,370
Liabilities and Stockholders’ Equity
Accounts payable	202,370
Common stock	351,000
Retained earnings	288,000
Total liabilities and stockholders’ equity	841,370