Question

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

1.	Estimated sales for July, August, September, and October will be $310,000, $330,000, $320,000, and $340,000, 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 75% 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 $58,000. Each month $6,000 of this total amount is depreciation expense and the remaining $52,000 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 using an absorption income statement format.

             

4.	Prepare a balance sheet as of September 30.

[The following information applies to the questions displayed below.]

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	$   83,000
Accounts receivable	126,000
Inventory	69,750
Plant and equipment, net of depreciation	220,000
Total assets	$ 498,750
Liabilities and Stockholders’ Equity
Accounts payable	$   81,000
Common stock	348,000
Retained earnings	69,750
Total liabilities and stockholders’ equity	$ 498,750

        

Answer 1

1. Schedule of Expected Cash Collection

	July	August	September	Quarter
From Accounts Receivable	$126,000			$126,000
From July Sales	$139,500	$170,500		$310,000
From August Sales		$148,500	$181,500	$330,000
From September Sales			$144,000	$144,000
Total Cash Collection	$265,500	$319,000	$325,500	$910,000

2. A). Beech Corporations Merchandise Purchase Budget

	July	August	September	Quarter
Budgeted Cost of Goods Sold	$232,500	$247,500	$240,000	$720,000
Add: Desired Ending Inventory	$49,500	$48,000	$51,000	$148,500
Total Needs	$282,000	$295,500	$291,000	$868,500
Less: Beginning Inventory	$69,750	$49,500	$48,000	$167,250
Budgeted Purchase	$212,250	$246,000	$243,000	$701,250

2. B.) Beech Corporation Schedule of Expected Cash Disbursement - Merchandise Purchase

	July	August	September	Quarter
From Accounts Payable	$81,000			$81,000
From July Purchase	$63,675	$148,578		$212,250
From August Purchase		$73,800	$172,200	$246,000
From September Purchase			$72,900	$72,900
Total Cash Disbursement	$144,675	$222,375	$245,100	$612,150

3. Beech Corporation    Income Statement For the Quarter Ended September 30

Sales	$960,000
Cost of Goods Sold	$720,000
Gross Margin	$240,000
Selling& administrative Expense ($58,000×3)	$174,000
Net Operating Income	$66,000
Interest Expense	0
Net Income	$66,000

4. Beech Corporation Balance Sheet ,September 30

Assets
Cash ($83,000 +$910,000 - $612,150 - ( $52,000×3)	$224,850
Accounts Receivable ($320,000 × 55%)	$176,000
Inventory	$51,000
Plant and Equipment Ney ($220,000 - ($6,000 × 3)	$202,000
Total Asset	$653,850
Liabilities and Stockholders Equity
Accounts Payable ($243,000 × 70%)	$170,100
Common Stock	$348,000
Retained Earnings	$135,750
Total Liabilities and Stockholders Equity	$653,850