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 $ 94,000 Accounts receivable 145,000 Inventory 59,400 Plant and equipment, net of depreciation 222,000 Total assets $ 520,400 Liabilities and Stockholders’ Equity Accounts payable $ 83,000 Common stock 331,000 Retained earnings 106,400 Total liabilities and stockholders’ equity $ 520,400 Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $330,000, $350,000, $340,000, and $360,000, respectively. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. Each month’s ending inventory must equal 20% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. Monthly selling and administrative expenses are always $42,000. Each month $6,000 of this total amount is depreciation expense and the remaining $36,000 relates to expenses that are paid in the month they are incurred. 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. Also compute total cash collections for the quarter ended September 30.

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. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. 3. Prepare an income statement for the quarter ended September 30. 4. Prepare a balance sheet as of September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

Ans-1- Preparing a schedule of expected cash collections for July,August ,September and for the quarter ended:-

	July	August	September	Quarter
From Accounts Receivable	$145,000			$145,000
From July Sales	$148,500 ($330,000*45/100)	$181,500 ($330,000*55/100)		$330,000
From August Sales		$157,500 ($350,000*45/100)	$192,500 ($350,000*55/100)	$350,000
From September Sales			$153,000 ($340,000*45/100)	$153,000
Total Cash Collections	$293,500	$339,000	$345,500	$978,000

Accounts Receivable balance on September 30 is $187,000

Ans-2-a- Merchandise Purcahses Budget

	July	August	September	Quarter
Budgeted Cost of Goods Sold (60% of sales)	$198,000 ($330,000*60/100)	$210,000 ($350,000*60/100)	$204,000 ($340,000*60/100)	$612,000
Add: Desired Ending Inventory (20%of the cost of next month's Cost of goods sold)	$42,000 ($210,000*20/100)	$40,800 ($204,000*20/100)	$43,200 ($216,000*20/1000	$43,200
Total Needs	$240,000	$250,800	$247,200	$655,200
Less: Beginning Inventory	$59,400	$42,000	$40,800	$59,400
Budgeted Purchases	$180,600	$208,800	$206,400	$595,800

Working Note:

September's Cost of goods sold-

60%of October's sale- $360,000*60/100=$216,000

Ans-2-b- Schedule of Expected Cash Disbursements -Merchandise Purchases

	July	August	September	Quarter
From Accounts Payable	$83,000			$83,000
From July Purchases	$54,180 ($180,600*30/100)	$126,420 ($180,600*70/100)		$180,600
From August Purchases		$62,640 ($208,800*30/100)	$146,160 ($208,800*70/100)	$208,800
From September Purchases			$61,920 ($206,400*30/100)	$61,920
Total Cash Disbursements	$137,180	$189,060	$208,080	$534,320

Ans-3- Beech Corporation

Income Statement

For the Quarter Ended September 30

Sales	$1,020,000
Less: Cost of goods sold	$612,000
Gross Margin	$408,000
Less: Selling and administrative expenses ($42,000*3 months)	$126,000
Net Operating Income/(Loss)	$282,000
Less: Interest Expense	$0
Net Income /(Loss)	282,000

Ans-4- Beech Corporation

Balance Sheet

As at September 30

Assets:-
Cash	$429,680
Accounts Receivable	$187,000
Inventory	$43,200
Plant and Equipment,Net	$204,000
Total Assets	$863,880
Liabilities and Stockholders' Equity
Accounts Payable ($206,400-$61,920)	$144,480
Common Stock	$331,000
Retained Earnings	$388,400
Total Liabilities and Stockholders' Equity	$863,880

Working Note:-

Cash, Ending Balance= Beginning Cash Balance+Cash Receipts-Cash Disbursements for Purchases-Cash Disbursements for Selling and Adminitrative Expenses

=$94,000+$978,000-$534,320-$108,000($36,000*3)

=$429,680

2- Plant and Equipment,Net-$222,000-$18,000 Depreciation ($6,000*3months)

=$204,000