Question

In: Accounting

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

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.

Solutions

Expert Solution

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

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