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	$	75,600
Accounts receivable		61,800
Inventory		36,600
Buildings and equipment, net of depreciation		199,000
Total assets	$	373,000
Liabilities and Stockholders’ Equity
Accounts payable	$	33,000
Common stock		100,000
Retained earnings		240,000
Total liabilities and stockholders’ equity	$	373,000

Budgeting Assumptions:

1. 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.
2. 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.
3. The budgeted inventory balance at July 31 is $37,800.
4. Depreciation expense is $3,980 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
5. The company’s cash budget for July shows expected cash collections of $98,700, expected cash disbursements for merchandise purchases of $48,000, and cash paid for selling and administrative expenses of $20,620.

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

	Budgeted sales
Sr No	Particulars	June	July
A	Account Receivable	61800	230300
B	% of credit sales collectable in next month	70%	70%
C	Total sales for July month (A/B)	88286	329000
D	30% of sales to be received in same month (C*30%)	26486	98700
	Budgeted Purchase
Sr no	Particulars	June	July
A	Account payables	33000	192000
B	% of credit purchase payable in next month	80%	80%
C	Total purchases (A/B)	41250	240000
D	20 % of purchases will be paid in same month (C*20%)	8250	48000
	budgeted profit
Sr no	Particulars	Amount
A	Sales	329000
B	Opening inventory	36600
C	Purchases	240000
D	Closing inventory	37800
E	Budgeted Cost of goods sold (B+C-D)	238800
F	Gross Profit (A-E)	90200
G	Depreciation	3980
H	Selling and Administrative expense	20620
T	Net profit (F-G-H)	65600
	Budgeted Balance Sheet
	Liability	Amount	Assets	Amount
	Common stock	100000	Building and equipment	199000
	Retain earning	305600	Depreciation	-3980
	(240000+65600)		Net of Depreciation	195020
	Account payable	192000
			Inventory	37800
			Account Receivable	230300
			Cash Balance	134480
		597600		597600
	Budgeted Cash balance
	Particulars	Amount	Particulars	Amount
	Opening balance	75600	Cash payable	33000
	Cash receivable	61800	Cash purchases	48000
	Cash sales for July	98700	selling and administrative	20620
			Closing balance	134480
		236100		236100