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 $ 80,000 Accounts receivable 135,000 Inventory 41,250 Plant and equipment, net of depreciation 211,000 Total assets $ 467,250 Liabilities and Stockholders’ Equity Accounts payable $ 72,000 Common stock 345,000 Retained earnings 50,250 Total liabilities and stockholders’ equity $ 467,250 Beech’s managers have made the following additional assumptions and estimates: 1.Estimated sales for July, August, September, and October will be $220,000, $240,000, $230,000, and $250,000, 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 25% 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 $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 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. Loading...

Answer 1

1	Schedule of Cash Collections
		July	August	September	Third Quarter
	Estimated Sales	$220,000	$240,000	$230,000	$690,000
	Cash collection in the month of sales-35%	$77,000	$84,000	$80,500	$241,500
	Cash collection in the month following the sales-65%	$135,000	$143,000	$156,000	$434,000
	Total cash collection	$212,000	$227,000	$236,500	$675,500
2-a	Merchandise purchases budget
		July	August	September	Third Quarter
	Estimated Sales	$220,000	$240,000	$230,000	$690,000
	Cost of goods sold	$165,000	$180,000	$172,500	$517,500
	Add: Desired Ending Inventory-20% of next month	$60,000	$57,500	$62,500	$62,500
	Less: Beginning Inventory	$41,250	$60,000	$57,500	$41,250
	Merchandise purchases budget	$183,750	$177,500	$177,500	$538,750
2-b	Cash disbursement for Merchandise purchases
		July	August	September	Third Quarter
	Merchandise purchases budget	$183,750	$177,500	$177,500	$538,750
	Cash payment in the month of purchase -40%	$73,500	$71,000	$71,000	$215,500
	Cash payment in the month following the purchase -60%	$72,000	$110,250	$106,500	$288,750
	Total Cash Payment	$145,500	$181,250	$177,500	$504,250
C	Income Statement for quarter ended September 30
	Particulars	Amount
	Sales	$690,000
	Cost of Goods Sold (690000 x 75%)	$517,500
	Gross Profit	$172,500
	Selling and Administrative Expenses ($40000 x 3)	$120,000
	Net income	$52,500
D	Balance sheet as of September 30
	Assets
	Cash	$149,250
	Accounts receivable	$149,500
	Inventory	$62,500
	Plant and Equipment, net of depreciation	$193,000
	Total Assets	$554,250
	Liabilities and Stockholder's Equity
	Accounts Payable	$106,500
	Common Stock	$345,000
	Retained Earnings	$102,750
	Total Liabilities and Stockholder's Equity	$554,250
	Working Note:
	Cash Balance
	Opeing cash balance	$80,000
	Add: Cash collection	$675,500
	Less: Cash payment for inventory	$504,250
	Less: Selling and Administrative expenses (34000*3)	$102,000
	Net change	$69,250
	Closing Cash Balance	$149,250