Question

Highlands Company’s balance sheet shows the following:

Highlands Company

Balance Sheet

August 31

Assets

Cash.... $ 7,000

Accounts receivable ... 54,000

Inventory ...... 30,000

Buildings and equipment, net of depreciation .... 207,000

Total assets ... $298,000

Liabilities and Stockholders’ Equity

Accounts payable ..... $ 61,000

Note payable...... 14,500

Common stock.......... 180,000

Retained earnings ......... 42,500

Total liabilities and stockholders’ equity.............. $298,000

The company is preparing a budget for September and its accounting records show the following:

a. The September’s sales budget is $200,000. Thirty percent of the budgeted sales are expected to be cash sales. Seventy percent of the sales are expected to be credit sales. Fifty percent of the credit sales are expected to be collected during September. Another fifty percent are expected to be collected during October. All of the August accounting receivable are expected to be collected in September.

b. During September, purchases of inventory will be $120,000 which will be on credit. Of these purchases, $48,000 will be paid for in September and the remainder will be paid in October. The company will pay all of its August accounts payable to suppliers in September.

c. The inventory balance at the end of September is expected to be $40,000.

d. Selling, general, and administrative expenses are expected to be $72,000, which will be paid in cash in September. In addition to $72,000, depreciation expense is expected to be $2,000 in September.

e. In September, the company will pay all of its August note payable balance. It will also pay $300 interest, which relates to September.

f. The company will buy new equipment at $6,500 with cash in September.

g. In September, $20,000 will be borrowed from a bank and the company will sign a note payable for it. The company will need to pay its new note payable a year later.

Required: For September, prepare the followings.

1. Budgeted income statement

2. Schedule of cash receipts for sales

3. Schedule of cash payments for inventory purchases

4. Cash budget

Answer 1

Solution 1.
Preparation of Budgeted Income Statement
Particulars			Amount
Sales			$   200,000.00
Add: Closing Stock			$     40,000.00
	Subtotal (A)		$ 240,000.00
Opening Stock			$     30,000.00
Add: Purchases			$   120,000.00
	Subtotal (B)		$ 150,000.00
Gross Profit	C = (A - B)		$    90,000.00
Selling General & Admin. Expenses			$     72,000.00
Depritication			$       2,000.00
Interest Expense			$          300.00
Total Expenses	Subtotal (D)		$    74,300.00
Net Profit	E = (C-D)		$     15,700.00
Solution 2.
Schedule of Cash Receipts for September Sales
	September	October	November	Total		Notes
Sales	$ 200,000.00			$ 200,000.00
Cash Receipts
30% September	$ (60,000.00)			$ (60,000.00)
35% October		$ (70,000.00)		$ (70,000.00)		50% of balance as stated in question
35% November			$   (70,000.00)	$ (70,000.00)		50% of balance as stated in question
Total (Should be "0")				$                 -
Solution 3.
Schedule of Cash payments for inventory purchases
Particular	September	October	Total
Payments to Accounts payables for the month of August	$   61,000.00		$     61,000.00
Payments for Inventory purchases made is September	$   48,000.00	$   72,000.00	$   120,000.00
Solution 4.
Cash Budget
	Amount
Particulars	September	October	November	Total
Opening Balance	$     7,000.00	$ 202,300.00	$     72,000.00
Add : Receviables
Receviables for August Sales	$   54,000.00
Receviables for September Sales	$   60,000.00	$   70,000.00	$     70,000.00
Bank Loan	$   20,000.00
Subtotal (A)	$ 141,000.00	$ 272,300.00	$ 142,000.00
Less :
Selling General & Admin. Expenses	$   72,000.00
Payments made to Accounts payables	$ 109,000.00	$   72,000.00
Note Payable	$   14,800.00
Purchase of New Equipment	$     6,500.00
Subtotal (B)	$ 202,300.00	$   72,000.00	$                   -
Closing Balance (A - B)	$ (61,300.00)	$ 200,300.00	$ 142,000.00