Question

In: Accounting

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown...

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:

Wheeling Company
Balance Sheet
September 30
Assets
Cash $ 70,600
Accounts receivable 118,000
Inventory 51,300
Buildings and equipment, net of depreciation 244,000
Total assets $ 483,900
Liabilities and Stockholders’ Equity
Accounts payable $ 119,900
Common stock 216,000
Retained earnings 148,000
Total liabilities and stockholders’ equity $ 483,900

The company is in the process of preparing a budget for October and has assembled the following data:

  1. Sales are budgeted at $380,000 for October and $390,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.

  2. The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.

  3. All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.

  4. Selling and administrative expenses for October are budgeted at $79,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,440 for the month.

Required:

1. Using the information provided, calculate or prepare the following:

e. A budgeted balance sheet at October 31.

2. Assume the following changes to the underlying budgeting assumptions:

(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. Net operating income for the month of October.

e. A budgeted balance sheet at October 31.

Solutions

Expert Solution

Answer 1(e)-

Wheeling Company

Balance Sheet

October 31

Assets

Cash (Note1)

$

169,195

Accounts receivable (Note 2)

148,200

Inventory (Note 3)

52,650

Buildings and equipment, net of depreciation (Note 3)

241,560

Total assets

$

611,605

Liabilities and Stockholders’ Equity

Accounts payable (Note 4)

$

120,645

Common stock

216,000

Retained earnings (Note 5)

274,960

Total liabilities and stockholders’ equity

$

611,605

Note 1- Cash
Opening Balance= 70,600
Add: Cash sales (35% of 380,000)= 133,000
Add: Cash collected for credit sales made in October (40% of(65%of 380,000))= 98,800
Add: Cash received for Accounts receivable of September 30= 118,000
Less: Cash paid for opening balance of Accounts Payable= (119,900)
Less: Cash purchases (30% of 172,350)= (51,705)
Less: Selling and administration expenses= (79,600)
Cash Balance= 169,195

Note 2- Accounts Receivable
Opening Balance= 118,000
Less: Cash received for Accounts receivable of September 30= (118,000)
Add: Credit sales (65% of 380,000)= 247,000
Less: Cash received for credit sales made in October (40% of 247,000)= (98,800)
Accounts Receivable= 148,200

Note 3-
A. Cost of goods sold (October)= 45% of 380,000= 171,000

B. Ending Inventory= 30% of (45% of 390,000)= 52,650

C. Purchases made in October-
Closing Inventory= 52,650
Add: Cost of goods sold= 171,000
Less: Opening Inventory= (51,300)
Purchases made in October= 172,350

D. Buildings And Equipment less depreciation= 244,000-2,440= 241,560

Note 4 Accounts Payable-

Opening Balance =119,900
Less: Cash paid for opening balance= (119,900)
Add: Credit purchases (70% of 172,350)= 120,645
Accounts Payable= 120,645

Note 5- Retained Earnings

Opening Balance= 148,000
Add: Sales= 380,000
Less: Cost of goods sold= (171,000)
Less: Selling and administration expenses= (79,600)
Less: Depreciation = (2,440)
Retained Earnings= 274,960


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