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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	$	96,000
Accounts receivable		139,000
Inventory		70,200
Plant and equipment, net of depreciation		228,000
Total assets	$	533,200
Liabilities and Stockholders’ Equity
Accounts payable	$	89,000
Common stock		333,000
Retained earnings		111,200
Total liabilities and stockholders’ equity	$	533,200

Exercise 8-12

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

1. Estimated sales for July, August, September, and October will be $390,000, $410,000, $400,000, and $420,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $54,000. Each month $7,000 of this total amount is depreciation expense and the remaining $47,000 relates to expenses that are paid in the month they are incurred.

5. 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.

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.

3. Prepare an income statement that computes net operating income 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					139,000			139,000
From July sales		(390,000*35%;65%)			136500	253500		390000
From August sales		(410,000*35%;65%)				143500	266500	410000
From September sales		(400,000*35%)					140000	140000
Total cash collections					275,500	397000	406500	1,079,000
			Accounts receivable 400,000*65%=				260000
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(60% of sales)		234000	246000	240000	720000
Add:Desired ending merchandise inventory					73800	72000	75600	75600
total needs					307800	318000	315600	795600
less: Beginning merchandise inventory					70,200	73800	72000	70,200
Required purchased					237,600	244200	243600	725,400
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					89,000			89,000
From July purchases					95040	142560		237600
From august purchases						97680	146520	244200
From September purchases							97440	97440
total cash disbursements					184,040	240240	243960	668,240
		Accounts payable		243600*60%=		146160
3)		Income Statement
	Sales						1200000
	cost of goods sold						720000
	Gross profit						480000
	Selling and administrative expense				(54000*3)		162000
	net operating income						318000
	interest expense						0
	net income (loss)						318000
4)		Balance sheet
	Assets
	Cash						365,760
	Account receivable						260000
	inventory						75600
	Plant and Equipment,net						207000
	Total Assets						908360
	Liabilities and Stockholders Equity
	Accounts payable						146160
	Capital Stock						333,000
	Retained earnings		(81,750+130,500)				429200
	Total liabilities & Stockholder's Equity						908360