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Item 4

Item 4 Part 1 of 2 0.5 points

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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

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

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

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

Answer :

1.schedule of expected cash collections

	July	August	September	Total
Sales	$ 210000	$ 230000	$ 220000	$ 660000
Cash collected from Account receivable (a)	$ 136000			$ 136000
35 % sales collected in month of sale (b)	$ 73500	$ 80500	$ 77000	$ 231000
65 % sales collected in next month (c)		$ 136500	$ 149500	$ 286000
expected cash collections (a) + (b) + (c)	$ 209500	$ 217000	$ 226500	$ 653000

2.(a) merchandise purchases budget

	July	August	September	Total
Cost of goods sold	$ 126000	$ 138000	$ 132000	$ 396000
Add - Ending inventory	$ 41400	$ 39600	$ 43200	$ 43200
Total need	$ 167400	$ 177600	$ 175200	$ 439200
Less - opening inventory	$ 62000	$ 41400	$ 39600	$ 62000
merchandise purchases	$ 105400	$ 136200	$ 135600	$ 377200

Working note -1

September month closing inventory = $ 240000* 60 % * 30% = $ 43200

2.(b) schedule of expected cash disbursements for merchandise purchases

	July	August	September	Total
Merchandise purchase	$ 105400	$ 136200	$ 135600
Payment of Account payable (a)	$ 71100			$ 71100
40 % paymant in current month of purchase(b)	$ 42160	$ 54480	$ 54240	$ 150880
60 % payment in next month of purchase (c)		$ 63240	$ 81720	$ 144960
expected cash disbursements for merchandise purchases (a) + (b) + (c)	$ 113260	$ 117720	$ 135960	$ 366940

3. Income statement for the Quarter ended september 30

Particulars	Amount ($)
Sales	$ 660000
Less - Cost of goods sold	$ 396000
Gross profit	$ 264000
Less - Depreciation $ 5000*3	$ 15000
Selling and administrative expenses $ 55000*3	$ 165000
Net operating income	$ 84000

4.

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$ 211060
Account receivable	$ 143000
Inventory	$ 43200
Plant and Equipment	$ 195000
Total Assets	$ 592260
Liabilities and Stockholders’ Equity
Account payable	$ 81360
Common stock	$ 327000
Retained Earning	$ 183900
Total Liabilities and Stockholders’ Equity	$ 592260

Working note -2

Cash on june 30 = $ 90000 + $ 653000- $ 366940 - $ 165000 = $ 211060

Account Receivable = $ 220000*65% = $ 143000

Plant and Equipment = $ 210000- $ 15000 = $ 195000

Account payable = $ 135600*60% = $ 81360

Retained Earning = $ 99900+ $ 84000 = $ 183900