Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Deacon Company Balance Sheet March 31
Assets
Cash	$	60,200
Accounts receivable		30,800
Inventory		60,400
Buildings and equipment, net of depreciation		124,000
Total assets	$	275,400
Liabilities and Stockholders’ Equity
Accounts payable	$	71,100
Common stock		70,000
Retained earnings		134,300
Total liabilities and stockholders’ equity	$	275,400

Budgeted Income Statements
	April			May			June
Sales	$	168,000		$	178,000		$	198,000
Cost of goods sold		100,800			106,800			118,800
Gross margin		67,200			71,200			79,200
Selling and administrative expenses		22,400			23,900			26,900
Net operating income	$	44,800		$	47,300		$	52,300

Budgeting Assumptions:

60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

Budgeted sales for July are $208,000.

10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase.

Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

Depreciation expense is $1,100 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Answer 1

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2. Purchase of Merchandise Budget:
		Apr	May	Jun
Cost of Goods Sold		$           100,800	$           106,800	$           118,800
Add: Desired Ending Inventory	10000+50% of Next Month COGS	$             63,400	$             69,400	$             52,000
Need		$           164,200	$           176,200	$           170,800
Less: Beginning Inventory		$            -60,400	$            -63,400	$            -69,400
Total Cost of Purchases		$           103,800	$           112,800	$           101,400
1. Expected Cash Collections
Same Month	20%
Next Month	80%
	Total Sale	Apr	May	Jun	Jun 30 Receivable
Accounts Receivable - January 1	$                                                                30,800	$             30,800
Credit sales from:
April	$                                                                67,200	$             13,440	$             53,760		$                             -
May	$                                                                71,200		$             14,240	$             56,960	$                             -
June	$                                                                79,200			$             15,840	$                    63,360
Total Collection of Receivables	$                                                              248,400	$             44,240	$             68,000	$             72,800	$                    63,360
Total Cash Receipt from customers:		Apr	May	Jun	Total
Current Month Cash Sales	60%	$           100,800	$           106,800	$           118,800	$                 326,400
Total Collection of Receivables		$             44,240	$             68,000	$             72,800	$                 185,040
		$           145,040	$           174,800	$           191,600	$                 511,440
3. Payment for Merchandise:
Same	10%
Next	90%
	Total	Apr	May	Jun	Jun 30 Payable
Accounts Payable-January 1	$                                                                71,100	$             71,100
Marchandise Purchased in
April	$                                                              103,800	$             10,380	$             93,420		$                             -
May	$                                                              112,800		$             11,280	$           101,520	$                             -
June	$                                                              101,400			$             10,140	$                    91,260
Total Cash paid for merchandise	$                                                              389,100	$             81,480	$           104,700	$           111,660	$                    91,260
Selling Administartive Expense Budget:
		Apr	May	Jun	Total
Selling and Administrative Expenses		$             22,400	$             23,900	$             26,900	$                    73,200
Less Non Cash-Depreciation		$                1,100	$                1,100	$                1,100	$                      3,300
Cash Disbursment for selling and Admin		$             21,300	$             22,800	$             25,800	$                    69,900
Cash Budget:
		Apr	May	Jun	Jun 30 Payable
Beginning Cash Balance		$             60,200	$           102,460	$           149,760	$                    60,200
Cash Receipts from Customers		$           145,040	$           174,800	$           191,600	$                 511,440
Total Cash Available		$           205,240	$           277,260	$           341,360	$                 571,640
Cash Payment for:
Merchandise		$             81,480	$           104,700	$           111,660	$                 297,840
Selling and Admin Expense		$             21,300	$             22,800	$             25,800	$                    69,900
Total Cash Payments		$           102,780	$           127,500	$           137,460	$                 367,740
Ending Cash Balance		$           102,460	$           149,760	$           203,900	$                 203,900
9. Budgeted Balance Sheet:
Assets:
Cash		$           203,900
Accounts Receiviable		$             63,360
Merchandise Inventory		$             52,000
Total Current Assets			$           319,260
Building and Equipment, Net	124000-3300	$           120,700
Equipment, Net			$           120,700
Total Assets			$           439,960
Liabilities and Equity
Liabilities:
Accounts Payable		$             91,260
Total Liabilities			$             91,260
Stockholder Equity
Common Stock		$             70,000
Retained Earning		$           278,700
Total Stockholder Equity			$           348,700
Total Liabilities & Equity			$           439,960	$                       -