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Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10]

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Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	90,000
Accounts receivable		136,000
Inventory		62,000
Plant and equipment, net of depreciation		210,000
Total assets	$	498,000
Liabilities and Stockholders’ Equity
Accounts payable	$	71,100
Common stock		327,000
Retained earnings		99,900
Total liabilities and stockholders’ equity	$	498,000

Exercise 8-13

Beech’s managers have made the following additional assumptions and estimates:

Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, respectively.

All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

Each month’s ending inventory must equal 20% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

Monthly selling and administrative expenses are always $60,000. Each month $5,000 of this total amount is depreciation expense and the remaining $55,000 relates to expenses that are paid in the month they are incurred.

The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					136,000			136,000
From July sales		(210,000*45%;55%)			94500	115500		210000
From August sales		(230,000*45%;55%)				103500	126500	230000
From September sales		(220,000*45%)					99000	99000
Total cash collections					230,500	219000	225500	675,000
			Accounts receivable 220,000*55%=				121000
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(60% of sales)		126000	138000	132000	396000		144000
Add:Desired ending merchandise inventory					27600	26400	28800	28800
total needs					153600	164400	160800	424800
less: Beginning merchandise inventory					62,000	27600	26400	62,000
Required purchased					91,600	136800	134400	362,800
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					71,100			71,100
From July purchases		(91600*30%;70%)			27480	64120		91600
From august purchases		(136800*30%;70%)				41040	95760	136800
From September purchases			(134400*30%)				40320	40320
total cash disbursements					98,580	105160	136080	339,820
		Accounts payable		134400*70%=		94080
3)		Income Statement
	Sales						660000
	cost of goods sold		(660,000*60%)				396000
	Gross profit						264000
	Selling and administrative expense				(60000*3)		180000
	net operating income						84000
	interest expense						0
	net income (loss)						84000
4)		Balance sheet
	Assets
	Cash		(90000+675000-339820-165000)				260,180
	Account receivable						121000
	inventory						28800
	Plant and Equipment,net			(210,000-5000*3)			195000
	Total Assets						604980
	Liabilities and Stockholders Equity									0
	Accounts payable						94080
	Capital Stock						327,000
	Retained earnings		(99,900+84000)				183900
	Total liabilities & Stockholder's Equity						604980