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 $ 59,200 Accounts receivable 31,600 Inventory 47,500 Buildings and equipment, net of depreciation 119,000 Total assets $ 257,300 Liabilities and Stockholders’ Equity Accounts payable $ 76,400 Common stock 70,000 Retained earnings 110,900 Total liabilities and stockholders’ equity $ 257,300 Budgeted Income Statements April May June Sales $ 125,000 $ 135,000 $ 155,000 Cost of goods sold 75,000 81,000 93,000 Gross margin 50,000 54,000 62,000 Selling and administrative expenses 17,500 19,000 22,000 Net operating income $ 32,500 $ 35,000 $ 40,000 Budgeting Assumptions: 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. Budgeted sales for July are $165,000. 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. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold. Depreciation expense is $1,150 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred. Required: 1. Calculate the expected cash collections for April, May, and June. 2. Calculate the budgeted merchandise purchases for April, May, and June. 3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June. 4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Answer 1

Required Budgets are as prepared below:

Deacon Company
Sales Budget
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Budgeted sales	125,000	135,000	155,000	415,000

Deacon Company
Schedule of expected Cash collections
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Beginning Accounts Receivable	31,600			31,600
Cash sales	75,000	81,000	93,000	249,000
Credit Sales				0
Collected in same month	10,000	10,800	12,400	33,200
Collected in following month		40,000	43,200	83,200
Total collections	116,600	131,800	148,600	397,000
Account receivable for June Sale			49,600

Deacon Company
Merchandise Purchase Budget
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Cost of goods sold	75,000	81,000	93,000	249,000
Add: Desired Ending merchandise inventory	50,500	56,500	59,500	59,500
Total needs	125,500	137,500	152,500	308,500
Less: beginning merchandise inventory	47,500	50,500	56,500	47,500
Required dollar purchases	78,000	87,000	96,000	261,000

Deacon Company
Schedule of expected Cash payments
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Beginning Accounts Payable (a)	$76,400			$76,400
April Purchases (b)	$7,800	$70,200		$78,000
May Purchases (c )		$8,700	$78,300	$87,000
June Purchases (d)			$9,600	$9,600
Total payments (a+b+c+d)	$84,200	$78,900	$87,900	$251,000

Deacon Company
Selling and administrative exp
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Selling and administrative expenses	17,500	19,000	22,000	58,500
Less: Depreciation	1,150	1,150	1,150	3,450
Selling and administrative expenses paid	16,350	17,850	20,850	55,050

Deacon Company
Cash Budget
For the quarter ended June 30
	Month
Particulars	April	May	June	Total
Beginning Cash balance	59,200	75,250	110,300	59,200
Add: Collection from customers	$116,600	$131,800	$148,600	397,000
cash available for use	$175,800	$207,050	$258,900	$456,200
Less: cash Disbursements
Merchandise purchase	$84,200	$78,900	$87,900	251,000
Selling and administrative exp	16,350	17,850	20,850	55,050
Total disbusrement	100,550	96,750	108,750	306,050
Cash surplus/Deficit	75,250	110,300	150,150	150,150
Budgeted ending cash balance	75,250	110,300	150,150	150,150

Deacon Company
Budgeted balance Sheet
Jun-30
Assets
Cash	150,150
Accounts Receivable	49,600
Inventory	59,500
Buildings and equipment Net	115,550
Total assets	374,800
Liabilities and Stockholders' Equity
Accounts Payable purchases	86,400
Common Stock	70,000
Retained earnings	218,400
Total liabilities and stockholders' equity	374,800