Question

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:

Wheeling Company Balance Sheet September 30
Assets
Cash	$	60,200
Accounts receivable		110,000
Inventory		45,900
Buildings and equipment, net of depreciation		217,000
Total assets	$	433,100
Liabilities and Stockholders’ Equity
Accounts payable	$	88,100
Common stock		216,000
Retained earnings		129,000
Total liabilities and stockholders’ equity	$	433,100

The company is in the process of preparing a budget for October and has assembled the following data:

Sales are budgeted at $340,000 for October and $350,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.

The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.

All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.

Selling and administrative expenses for October are budgeted at $83,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,170 for the month.

Required:

2. Assume the following changes to the underlying budgeting assumptions:

(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. Net operating income for the month of October.

e. A budgeted balance sheet at October 31.

Answer 1

	Sales Budget
		Oct	Nov
	Sales	340000	350000
	Cash Sales - 35%	119000	122500
	Credit Sales - 65%	221000	227500
a)	Budgeted Cash Collections
		Oct
	Cash Sales	119000
	Collection from Accounts Receivables
	Accounts Receivables - Sep	110000
	Oct Sales - $221,000 X 50%	110500
	Total cash Collections	339500
b)	Merchandise Purchase Budget
		Oct	Nov
	Cost of Goods Sold - 45% of Sales	153000	157500
	Add: Ending Inventory - $157500X 10%	15750
	Total Needs	168750
	Less: opening Inventory	-45900
	Required Purchases	122850
c)	Schedule of Cash disbrsements to merchendise supplies
		Oct
	Cash Payment
	Accounts Payable - Sep	88100
	Oct Purchases - $122850*20%	24570
	Total Cash Payment to Suppliers	112670
	Cash budget
		Oct
	Opening cash Balance	60200
	Add: receipts
	Collection from Customers	339500
	Total Cash available	399700
	Less: Disbursements
	Cash Disbursement	112670
	Selling & Admn. Exp.	83000
	Total Disbursement	195670
	Cash Balance Closing (399700-195670)	204030
d)	Income Statement
	For the Month Ending Oct 31
	Sales		340000
	Less: Cost of Goods Sold - 45% of sales		153000
	Gross Margin (340000-153000)		187000
	Less: Selling & Admn. Exp.(83000+2170)		85170
	Net Income(187000-85170)		101830
e)	Balance Sheet
	As on Oct 31
	Assets
	Current Assets
	Cash	204030
	Accounts receivables-221500*50%	110500
	Inventory	15750
			330280
	Fixed Assets
	Building & Equipment (217000-2170)		214830
	Total Assets		545110
	Liabilities
	Accounts Payable		98280
	Total liabilities		98280
	Shareholders's Equity
	Common Stock	216000
	Retained Earnings	230830
	Total Stockholders equity		446830
	Total liabilities & Stockholders' Equity		545110