In: Accounting
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:
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.
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.
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.
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.
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