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	$	68,800
Accounts receivable		34,000
Inventory		64,600
Buildings and equipment, net of depreciation		122,000
Total assets	$	289,400
Liabilities and Stockholders’ Equity
Accounts payable	$	96,500
Common stock		70,000
Retained earnings		122,900
Total liabilities and stockholders’ equity	$	289,400

Budgeted Income Statements
	April			May			June
Sales	$	182,000		$	192,000		$	212,000
Cost of goods sold		109,200			115,200			127,200
Gross margin		72,800			76,800			84,800
Selling and administrative expenses		18,800			20,300			23,300
Net operating income	$	54,000		$	56,500		$	61,500

Budgeting Assumptions:

1. 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.

2. Budgeted sales for July are $222,000.

3. 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. The accounts payable at March 31 will be paid in April.

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

5. Depreciation expense is $1,300 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

As per the information provided of Deacon Company
Preparation of the following
1. Expected cash flows for April, May and June
Particulars	April	May	June
Cash collected from Accounts Receivable as on March 31	34000
Cash collected from Cash sales- 60% of sales	109200	115200	127200
Cash collected from Credit sales
April	14560	58240
May		15360	61440
June			16960
	157760	188800	205600
2. Budgeted Merchandise Purchases for April, May and June
Cost of goods sold during the month	109200	115200	127200
Add: Closing inventory should be($10000+50% of COGS)	67600	73600	76600	(10000+222000*0.6*0.5)
Less: Opening Inventory	64600	67600	73600
Purchases during the month	112200	121200	130200
3. Budgeted cash disbursements for April, May and June
Cash paid to Accounts payable as on March31	96500
Cash paid for cash purchases(10% of purchases)	11220	12120	13020
Cash paid for Credit purchases
April		100980	109080
May
June
Cash paid for selling and administrative expenses(Excluding
Depreciation)	17500	19000	22000
	125220	132100	144100
4. Balance Sheet as on June 30th
Assets:
Cash	219540
Accounts receivable	67840
Inventory	76600
Buildings and equipment, net of depreciation	118100
Total assets	482080
Liablilities and Stockholder's Equity
Accounts payable	117180
Common stock	70000
Retained earnings	294900
Total Liablilities and Stockholder's Equity	482080	0
Cash flow statement	April	May	June
Opening Balance	68800	101340	158040
Cash collections during the month(As per answer 1)	157760	188800	205600
	226560	290140	363640
Cash disbursements during the month(As per answer 3)	125220	132100	144100
Closing Balance	101340	158040	219540