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	$	91,400
Accounts receivable		67,200
Inventory		31,000
Buildings and equipment, net of depreciation		165,000
Total assets	$	354,600
Liabilities and Stockholders’ Equity
Accounts payable	$	62,600
Common stock		100,000
Retained earnings		192,000
Total liabilities and stockholders’ equity	$	354,600

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 $19,800.
4. Depreciation expense is $3,300 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 $96,300, expected cash disbursements for merchandise purchases of $72,000, and cash paid for selling and administrative expenses of $16,100.

Required:

Requirement 1a.

Calculate the budgeted sales for month of July.

	Budgeted sales for July

Requirement 1b.

Calculate the budgeted merchandise purchases for month of July.

	Budgeted merchandise purchases for July

Requirement 1c.

Calculate the budgeted cost of goods sold for month of July.

	Budgeted cost of goods sold for July

Requirement 1d.

Calculate the budgeted net operating income for month of July.

	Budgeted net operating income for July

Requirement 2.

Prepare a budgeted balance sheet as of July 31.

	Wolfpack Company Balance Sheet July 31 Assets Total assets Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity

Answer 1

(Expected/Budgeted Answers)

1a) Total collection in the month of July = $96,300

(These collections include June month credit sales 70% and July month credit sales 30%, and Accounts receivable for June = $67,200)

Workings:

July month credit sales collection 30% = (Total collection - June month credit sales collection70% .i.e., account receivables)

= $96,300-$67,200

= $ 29,100

i.e., July month credit sales = $29,100/30%

= $97,000

Budgeted credit sales for the month July

$97,000

1b) Total cash payments for merchandise purchases in July = $72,000

(These payments include 80% credit purchases of June and 20% credit purchases of July, and accounts payable for June =$62,600)

Workings:

July month credit purchases payments 20% = ( Total payments for credit purchases - June month credit purchases 80% .i.e., account payable)

= $72,000 - $62,600

= $9,400

.i.e., July month credit purchases = $9,400/20%

= $47,000

Budgeted merchandise purchases for July

$47,000

1c) Budgeted Cost of goods sold for July = ( Beginning inventory+ Purchases - Ending inventory )

= $31,000 + $47,000 - $19,800

= $78,000 - $19,800

= $58,200

Budgeted Cost of goods sold for July

$58,200

1d) Budgeted net operating income = Sales - (Cost of goods sold + depreciation + selling and administrative expenses)

= $97,000 - ($58,200 + $3,000 + $16,100)

= $97,000 - ( $77,300)

= $19,700

Budgeted net operating income

$19,700

Wolfpack Company
Balance sheet
July 31
Assets:	$
Cash	99,600
Accounts receivable	67,900
Inventory	19,800
Buildings and equipment, net of depreciation	162,000
Total Assets	349,300
Liabilities and stockholders equity:	$
Accounts payable	37,600
Common stock	100,000
Retained earnings	211,700
Total liabilities and stockholders equity	349,300

If any doubts/queries, please comment and ask. I'll surely explain you.