Question

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	$	81,000
Accounts receivable		132,000
Inventory		56,250
Plant and equipment, net of depreciation		214,000
Total assets	$	483,250
Liabilities and Stockholders’ Equity
Accounts payable	$	75,000
Common stock		346,000
Retained earnings		62,250
Total liabilities and stockholders’ equity	$	483,250

Exercise 8-12

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

1. Estimated sales for July, August, September, and October will be $250,000, $270,000, $260,000, and $280,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% 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 30% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% 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 $46,000. Each month $5,000 of this total amount is depreciation expense and the remaining $41,000 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.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					132,000			132,000
From July sales		(250,000*35%;65%)			87500	162500		250000
From August sales		(270,000*35%;65%)				94500	175500	270000
From September sales		(260,000*35%)					91000	91000
Total cash collections					219,500	257000	266500	743,000
			Accounts receivable 260,000*65%=				169000
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(75% of sales)		187500	202500	195000	585000		210000
Add:Desired ending merchandise inventory					60750	58500	63000	63000
total needs					248250	261000	258000	648000
less: Beginning merchandise inventory					56,250	60750	58500	56,250
Required purchased					192,000	200250	199500	591,750
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					75,000			75,000
From July purchases		(192000*40%;60%)			76800	115200		192000
From august purchases		(200,250*40%;60%)				80100	120150	200250
From September purchases			(199500*40%)				79800	79800
total cash disbursements					151,800	195300	199950	547,050
		Accounts payable		199500*60%		119700
3)		Income Statement
	Sales						780000
	cost of goods sold		(780,000*75%)				585000
	Gross profit						195000
	Selling and administrative expense				(46000*3)		138000
	net operating income						57000
	interest expense						0
	net income (loss)						57000
4)		Balance sheet
	Assets
	Cash		(81000+743000-547050-41000*3)				153,950
	Account receivable						169000
	inventory						63000
	Plant and Equipment,net			(214000-5000*3)			199000
	Total Assets						584950
	Liabilities and Stockholders Equity
	Accounts payable						119700
	Capital Stock						346,000
	Retained earnings						119250
	Total liabilities & Stockholder's Equity						584950