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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	$	94,000
Accounts receivable		145,000
Inventory		59,400
Plant and equipment, net of depreciation		222,000
Total assets	$	520,400
Liabilities and Stockholders’ Equity
Accounts payable	$	83,000
Common stock		331,000
Retained earnings		106,400
Total liabilities and stockholders’ equity	$	520,400

Exercise 8-13

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

1. Estimated sales for July, August, September, and October will be $330,000, $350,000, $340,000, and $360,000, respectively.

2. 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.

3. 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.

4. Monthly selling and administrative expenses are always $42,000. Each month $6,000 of this total amount is depreciation expense and the remaining $36,000 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. 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

1)	Schedule of Expected Cash Collections
	Particulars			July	August	September	Quarter
	Sales			$ 330,000.00	$ 350,000.00	$ 340,000.00	$ 1,020,000.00
	Collection for:
	Accounts Receivable			$ 145,000.00			$    145,000.00
	July			$ 148,500.00	$ 181,500.00		$    330,000.00
	August				$ 157,500.00	$ 192,500.00	$    350,000.00
	September					$ 153,000.00	$    153,000.00
	Total Collections			$ 293,500.00	$ 339,000.00	$ 345,500.00	$    978,000.00

2)	a)	Merchandise Purchase Budget
		Particulars			July	August	September	October	Quarter
		Sales			$ 330,000.00	$ 350,000.00	$ 340,000.00	$ 360,000.00	$ 1,020,000.00
		Cost of Goods sold (60%)			$ 198,000.00	$ 210,000.00	$ 204,000.00	$ 216,000.00	$    612,000.00
	Add:	Desired ending inventory (20%)			$   42,000.00	$   40,800.00	$   43,200.00		$    126,000.00
		Total goods required			$ 240,000.00	$ 250,800.00	$ 247,200.00		$    738,000.00
	Less:	Beginning inventory			$   59,400.00	$   42,000.00	$   40,800.00		$    142,200.00
		Purchase Required			$ 180,600.00	$ 208,800.00	$ 206,400.00		$    595,800.00
	b)	Schedule of Expected Cash Disbursements
		Particulars			July	August	September	Quarter
		Purchase Required			$ 180,600.00	$ 208,800.00	$ 206,400.00	$ 595,800.00
		Payment for:
		Accounts Payable			$   83,000.00			$   83,000.00
		July			$   54,180.00	$ 126,420.00		$ 180,600.00
		August				$   62,640.00	$ 146,160.00	$ 208,800.00
		September					$   61,920.00	$   61,920.00
		Total Payment			$ 137,180.00	$ 189,060.00	$ 208,080.00	$ 534,320.00

3)	Income Statement
	Sales		$ 1,020,000.00
Less:	Cost of Goods sold		$    612,000.00
	Gross Margin		$    408,000.00
Less:	Selling and Adm. Exp		$    126,000.00
	Net Income		$    282,000.00

4)	Balance Sheet
	Assets
	Current Assets
	Cash			$ 429,680.00
	Accounts Receivable			$ 187,000.00
	Inventory			$   43,200.00
	Total Current Assets			$ 659,880.00
	Plant and equipment, net			$ 204,000.00
	Total Assets			$ 863,880.00
	Liabilities and Equity
	Current Libailities
	Accounts Payable			$ 144,480.00
	Total Liabilities			$ 144,480.00
	Equity
	Common Stock			$ 331,000.00
	Retained Earnings			$ 388,400.00
	Total Equity			$ 719,400.00
	Total Liabilities and Equity			$ 863,880.00

Workings:

	Cash Budget
	Particulars			July	August	September	Quarter
	Beginning cash balance			$   94,000.00	$ 214,320.00	$ 328,260.00	$    636,580.00
Add:	Collections			$ 293,500.00	$ 339,000.00	$ 345,500.00	$    978,000.00
	Total cash available			$ 387,500.00	$ 553,320.00	$ 673,760.00	$ 1,614,580.00
Less:	Disbursements						$                     -
	Payment for Merchandise			$ 137,180.00	$ 189,060.00	$ 208,080.00	$    534,320.00
	Selling and Adm. Expenses			$   36,000.00	$   36,000.00	$   36,000.00	$    108,000.00
	Total Disbursements			$ 173,180.00	$ 225,060.00	$ 244,080.00	$    642,320.00
	Ending cash balance			$ 214,320.00	$ 328,260.00	$ 429,680.00	$    972,260.00