Question

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information: Wolfpack Company Balance Sheet June 30 Assets Cash $ 77,000 Accounts receivable 58,200 Inventory 32,800 Buildings and equipment, net of depreciation 186,000 Total assets $ 354,000 Liabilities and Stockholders’ Equity Accounts payable $ 39,000 Common stock 100,000 Retained earnings 215,000 Total liabilities and stockholders’ equity $ 354,000

Budgeting Assumptions:

All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.

All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase.

The budgeted inventory balance at July 31 is $29,500.

Depreciation expense is $3,720 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

The company’s cash budget for July shows expected cash collections of $83,100, expected cash disbursements for merchandise purchases of $48,300, and cash paid for selling and administrative expenses of $12,880.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1

SOLUTION

1A. Budgeted Total Sales of July :

Particulars	Amount ($)
Expected cash collection in july	83,100
Less: June's Accounts receivable	58,200
Cash collection of July Sales	24,900
30% of July Total Sales	24,900
Total Sales of July month (24,900/30%)	83,000

1B. Budgeted Merchandise purchases in July month:

Particulars	Amount ($)
Expected cash disbursement in july for Merchandise	48,300
Less: June's Accounts payable	39,000
Cash disbursement of July Merchandise purchases	9,300
20% of July Total Merchandise purchases	9.300
Total Merchandise purchases of July month (9,300/20%)	46,500

1C. Budgeted COGS = Inventory used to make July Sales

= Opening balance of Inventory + Inventory Purchased in July - Closing balance of Inventory on July31

= $32,800 + 46,500 - 29,500 = 49,800

1D. Budgeted Net Operating Income :

Particulars	Amount ($)
Sales	83,000
Less: Cost of goods sold	(49,800)
Gross profit	33,200
Less: Expenses-
Selling and administrative expense	(12,880)
Depreciation	(3,720)
Net operating income	16,600

2. Budgeted Balance Sheet as of July 31 :

	Amount ($)
Assets :
Cash (77,000+83,100-48,300-12,880)	98,920
Accounts receivable (83,000*70%)	58,100
Inventory	29,500
Building & Equipment (net of depreciation) (186,000-3,720)	182,280
Total Assets	368,800
Liabilities and Shareholder's Equity:
Accounts payable (46,500*80%)	37,200
Common stock	100,000
Retained Earnings (215,000+16,600)	231,600
Total Liabilities and Shareholder's Equity	368,800