Question

West End Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

• Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January.
• Collections are expected to be 75% in the month of sale and 25% in the month following the sale.
• The cost of goods sold is 70% of sales.
• The company desires an ending merchandise inventory equal to 85% of the cost of goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $20,000.
• Monthly depreciation is $19,800.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	20,800
Accounts receivable		81,800
Merchandise inventory		214,200
Property, plant and equipment (net of $584,000 accumulated depreciation)		994,000
Total assets	$	1,310,800
Liabilities and Stockholders' Equity
Accounts payable	$	194,800
Common stock		490,000
Retained earnings		626,000
Total liabilities and stockholders' equity	$	1,310,800

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

	November December Sales Schedule of Expected Cash Collections Accounts receivable November sales December sales Total cash collections

b. Prepare a Merchandise Purchases Budget for November and December.

	November December Budgeted cost of goods sold Total needs Required purchases

c. Prepare Cash Budgets for November and December.

	November December Cash disbursements for merchandise Other monthly cash expenses Total cash disbursements Beginning cash balance Add cash receipts Total cash available Less cash disbursements Excess (deficiency) of cash available over disbursements Financing Ending cash balance

d. Prepare Budgeted Income Statements for November and December.

	November December Sales Cost of goods sold Other monthly expenses Depreciation

e. Prepare a Budgeted Balance Sheet for the end of December.

	Balance Sheet December 31 Assets Cash Accounts receivable Inventory Property, plant and equipment (net of accumulated depreciation) Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity

Answer 1

a) Schedule for expected cash collection

Particulars	November	December
Sales	360,000	380,000
Accounts Receivables	81,800	-
November Sales	270,000*	90,000**
December Sales	-	285,000***
Total Cash collection	351,800	375,000

* 75% of 360,000. ** 25% of 360,000. *** 75% of 380,000.

b) Merchandise purchase budget

Particulars	November	December	January
Sales	360,000	380,000	370,000
COGs (70% of sales)           (A)	252,000	266,000	259,000
Ending Merchandise (B)	226,100*	220,150**	NA
Beginning Merchandise (C)	214,200	226,100
Purchases required (A+B-C)	263,900	260,050	-

* 85% of 266,000 i.e. 85% of ending merchandise of following month.

** 85% of 259,000 i.e. 85% of ending merchandise of following month.

c) Cash Budget

Particulars	November	December
Cash disbursement for merchandise	194,800	263,900
Other monthly cash expenses	20,000	20,000
Total disbursements                  (A)	214,800	283,900
Beginning cash balance	20,800	157,800
Add: Cash receipts	351,800	375,000
Total cash available                    (B)	372,600	532,800
Ending cash balance (B-A)	157,800	248,900

d) Budgeted income statement

Particulars	November	December
Sales                                        (A)	360,000	380,000
Less: COGs (B = A x 70%)	252,000	266,000
Other monthly exp. (C)	20,000	20,000
Depreciation (D)	19,800	19,800
Income/ Loss (A -B-C-D)	68,200	74,200

e) Budgeted Balance Sheet for the end of December

Assets	Amount
Cash	248,900
Account Receivables	95,000
Inventory	220,150
Property, plant & Equipment	954,400
Total	1,518,450
Liabilities and stockholders' Equity	Amount
Accounts payable	260,050
Common stock	490,000
Retained earning	768,400
Total	1,518,450