Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available

Deacon Company
Balance Sheet
March 31
Assets
Cash   $   68,200
Accounts receivable      42,000
Inventory      63,400
Buildings and equipment, net of depreciation      122,000
Total assets   $   295,600
Liabilities and Stockholders’ Equity
Accounts payable   $   96,400
Common stock      70,000
Retained earnings      129,200
Total liabilities and stockholders’ equity   $   295,600

Budgeted Income Statements                 
    April      May      June
Sales   $   178,000      $   188,000      $   208,000
Cost of goods sold      106,800         112,800         124,800     
Gross margin      71,200         75,200         83,200
Selling and administrative expenses      19,000         20,500         23,500
Net operating income   $   52,200      $   54,700      $   59,700

Budgeting Assumptions:

60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

Budgeted sales for July are $218,000.

10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.

Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

Depreciation expense is $1,800 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30 balance sheet.)

Answer 1