Question

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Wolfpack Company Balance Sheet June 30
Assets
Cash	$	75,000
Accounts receivable		58,600
Inventory		43,000
Buildings and equipment, net of depreciation		205,000
Total assets	$	381,600
Liabilities and Stockholders’ Equity
Accounts payable	$	68,600
Common stock		100,000
Retained earnings		213,000
Total liabilities and stockholders’ equity	$	381,600

Budgeting Assumptions:

All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.

All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase. The accounts payable at June 30 will be paid in July.

The budgeted inventory balance at July 31 is $19,800.

Depreciation expense is $4,100 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

The company’s cash budget for July shows expected cash collections of $80,200, expected cash disbursements for merchandise purchases of $72,600, and cash paid for selling and administrative expenses of $10,300.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1

1)
	a.	Budgeted Sales		$ 72,000.00
	Working:
	Total Cash collection in July								$ 80,200.00
	Less:Cash collected on account of last month's accounts receivable								$ 58,600.00
	Cash collected on account of current month's accounts receivable								$ 21,600.00
	/ % of sales collected in the month of sales (in July)								30%
	Budgeted Sales								$ 72,000.00
	b.	Budgeted Merchandise purchases							$ 20,000.00
	Working:
	Total cash paid for merchandise purchase								$ 72,600.00
	Less:Cash paid on accounts of last month(accounts payable in the balance sheet)								$ 68,600.00
	Cash paid on account of current month								$   4,000.00
	/ % of purchase paid in current month								20%
	Total Purchases								$ 20,000.00
	c.
		Budgeted cost of goods sold			$ 43,200.00
		Working:
		Beginning Inventory			$ 43,000.00
		Add:Purchases			$ 20,000.00
		Less:Ending Inventory			$ 19,800.00
		Cost of goods sold			$ 43,200.00
	d.
		Budgeted Net operating income			$ 14,400.00
		Working:
		Sales					$     72,000.00
		Less:Cost of goods sold					$     43,200.00
		Gross Profit					$     28,800.00
		Less:Operating Expense:
		Depreciation Expense				4100
		Other selling and administration expense				10300	14400
		Budgeted Net operating income					$     14,400.00
2)		Wolfpack Company
		Balance Sheet
		July 31
		Assets
		Cash					$     72,300.00
		Accounts Receivable					$     50,400.00
		Inventory					19800
		Building and Equipment, net of depreciation					200900
		Total Assets					$ 3,43,400.00
		Liabilities and Stockholder's Equity
		Accounts Payable					$     16,000.00
		Common Stock					100000
		Retained Earning					$ 2,27,400.00
		Total Liabilities and Stockholder's Equity					$ 3,43,400.00
		Working:
		# 1
			Beginning Cash					$     75,000.00
			Add:Cash collection during the month					$     80,200.00
			Total Cash available before payment					$ 1,55,200.00
			Less:Payments:
				Merchandise paid			$     72,600.00
				selling and administrtaion expense			$     10,300.00	$     82,900.00
			Ending Cash					$     72,300.00
		# 2
			Accounts Receivable balance			=	Total credit sales * Total % uncollected during the month
						=	$     72,000.00	*	70%
						=	$     50,400.00
		# 3	Building and Equipment, net of depreciation-June					205000
			Less:Depreciation for the month of July					4100
			Building and Equipment, net of depreciation-July					200900
		# 4
			Accounts Payable		=	Total Purchase*Purchases paid in the next month
					=	$ 20,000.00	*	80%
					=	$ 16,000.00
		# 5
			Retained Earning-June				213000
			Add:Net Income -July				$     14,400.00
			retained Earning-July				$ 2,27,400.00