Question

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

Deacon Company Balance Sheet March 31
Assets
Cash	$	73,600
Accounts receivable		39,600
Inventory		66,700
Buildings and equipment, net of depreciation		192,000
Total assets	$	371,900
Liabilities and Stockholders’ Equity
Accounts payable	$	167,300
Common stock		70,000
Retained earnings		134,600
Total liabilities and stockholders’ equity	$	371,900

Budgeted Income Statements
	April			May			June
Sales	$	189,000		$	199,000		$	219,000
Cost of goods sold		113,400			119,400			131,400
Gross margin		75,600			79,600			87,600
Selling and administrative expenses		19,900			21,400			24,400
Net operating income	$	55,700		$	58,200		$	63,200

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 $229,000.

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.

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

Depreciation expense is $1,650 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

4. Prepare a budgeted balance sheet at June 30th. (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 30th balance sheet.)

Answer 1

	Deacon Company
	Balance sheet
	Jun-30
	Asset
	Cash	166830
	Accounts receivable	70080
	Inventory	78700
	Building and equipment, net	187050
	Total asset	502660
	Liabilities & stockholder's equity
	Accounts payable	120960
	common stock	70000
	Retained earning	311700
	Total Liabilities & stockholder's equity	502660
Calculation of Inventory, accounts receivable and account payable
Inventory
% of cost of goods sold to sales		60	%
Budgeted sales for July month		229000
Cost of goods sold for July month		137400
Inventory=10000+50% of next month's cost of goods sold		78700
Accounts receivable
Total sales for June month		219000
60% of above are cash sales		131400
Credit sales		87600
20% of above are collected in the month of sale		17520
Accounts receivable		70080
Accounts payable
Ending Inventory at June end-$10000		68700
Add : cost of goods sold for June		131400
Less : Beginning Inventory -$10000		65700
Purchases for June		134400
10% of above are in cash		13440
Balance on credit payable insubsequent month		120960
Accounts payable		120960
Calculation of cash
Beginning Balance		73600
Add : beginning accounts receivable		39600
Add : All sales during period -Account receivable at June end		536920
Less : beginning accounts payable		167300
Less : all purchases-Accounts payable at June end		255240
Less : selling and administration expenses		60750
Cash at June end		166830