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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	$	85,000
Accounts receivable		141,000
Inventory		83,250
Plant and equipment, net of depreciation		226,000
Total assets	$	535,250
Liabilities and Stockholders’ Equity
Accounts payable	$	87,000
Common stock		350,000
Retained earnings		98,250
Total liabilities and stockholders’ equity	$	535,250

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $370,000, $390,000, $380,000, and $400,000, respectively.

2. 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.

3. Each month’s ending inventory must equal 20% of the cost of next month’s sales. The cost of goods sold is 75% 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.

4. Monthly selling and administrative expenses are always $50,000. Each month $7,000 of this total amount is depreciation expense and the remaining $43,000 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. 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.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					141,000			141,000
From July sales		(370,000*45%;55%)			166500	203500		370000
From August sales		(390,000*45%;55%)				175500	214500	390000
From September sales		(380,000*45%)					171000	171000
Total cash collections					307,500	379000	385500	1,072,000
			Accounts receivable 380,000*55%=				209000
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(75% of sales)		277500	292500	285000	855000
Add:Desired ending merchandise inventory					58500	57000	60000	60000
total needs					336000	349500	345000	915000
less: Beginning merchandise inventory					83,250	58500	57000	83,250
Required purchased					252,750	291000	288000	831,750
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					87,000			87,000
From July purchases					75825	176925		252750
From august purchases						87300	203700	291000
From September purchases							86400	86400
total cash disbursements					162,825	264225	290100	717,150
		Accounts payable		288000*70%		201600
3)		Income Statement
	Sales						1140000
	cost of goods sold						855000
	Gross profit						285000
	Selling and administrative expense				(50000*3)		150,000
	net operating income						135000
	interest expense						0
	net income (loss)						135000
4)		Balance sheet
	Assets
	Cash						310,850
	Account receivable						209000
	inventory						60000
	Plant and Equipment,net						205000
	Total Assets						784,850
	Liabilities and Stockholders Equity
	Accounts payable						201600
	Capital Stock						350,000
	Retained earnings		(81,750+130,500)				233250
	Total liabilities & Stockholder's Equity						784850