Question

Dresser Corporation sells bedroom furniture. Data regarding the store's operations follow:

•    Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.

•    Collections are expected to be 85% in the month of sale and 15% in the month following the sale.

•    The cost of goods sold is 60% of sales.

•    The company desires an ending merchandise inventory equal to 80% of the cost of goods sold in the following month.

•    Payment for merchandise is made in the month following the purchase.

•    Other monthly expenses to be paid in cash are $21,200.

•    Monthly depreciation is $21,000.

•    Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	22,000
Accounts receivable		83,000
Merchandise inventory		158,400
Property, plant and equipment (net of $594,000 accumulated depreciation)		1,004,000
Total assets	$	1,267,400
Liabilities and Stockholders' Equity
Accounts payable	$	196,000
Common stock		620,000
Retained earnings		451,400
Total liabilities and stockholders' equity	$	1,267,400

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Answer 1

Prepare a Schedule of Expected Cash Collections for November and December.
	Particulars			November	December	Total
	Sales			$330,000	$300,000	$630,000
	Same month - 85%			$280,500	$255,000	$535,500
	Next Month - 15%				$49,500	$49,500		$45,000
	Account Receivable october			83000		$83,000
	Total Collections			$363,500	$304,500	$668,000
Prepare a Merchandise Purchases Budget for November and December.
	Particulars			November	December
	Cost of Goods Sold			$198,000	$180,000
	Ending Inventory			$144,000	153600		320000*60%*80%
	Beginning Inventory			158400	$144,000
	Purchases			$183,600	$189,600
	Payment				183600
	Accounts Payable of oct			196000
	Total Payment			196000	183600
Prepare Cash Budgets for November and December.
	Cash Budget
	For the two months Ending December
		November	December
	Beginning Cash Balance	$22,000	$168,300
	Add: Receipts
	Collection from Customers	$363,500	$304,500
	Total Available Cash	$385,500	$472,800
	Less : Disbursements
	Purchases	$196,000	$183,600
	Other Monthly Expenses	$21,200	$21,200
	Total Payments	$217,200	$204,800
	Ending Cash Balance	$168,300	$268,000
Prepare Budgeted Income Statements for November and December.
		November	December
	Sales	$330,000	$300,000
	Less : Cost of Goods Sold	$198,000	$180,000
	Gross Profit	$132,000	$120,000
	Other Expenses	21200	21200
	Depreciation	21000	21000
	Net Income	$89,800	$77,800
Prepare a Budgeted Balance Sheet for the end of December.
	Balance Sheet
	31-Dec
	Assets
	Cash	$	268,000
	Accounts receivable		45,000
	Merchandise inventory		153,600
	Property, plant and equipment (net of $636000 accumulated depreciation)		962,000
	Total assets	$	1,428,600
	Liabilities and Stockholders' Equity
	Accounts payable	$	189,600
	Common stock		620,000
	Retained earnings		619,000		89800+77800+451400
	Total liabilities and stockholders' equity	$	1,428,600