Question

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

1 Prepare a schedule of expected cash collections for July, August, and September.

Schedule of expected cash collection - Beech Corporation
Particulars	July	August	September	Total
Accounts Receivables from June	$136,000.00			$136,000.00
Cash received for July Sale	$73500 (35%)	$136500 (65%)		$210,000.00
Cash received for August Sale		$80500 (35%)	$149500. (65%)	$230,000.00
Cash received for September Sale			$77000 (35%)	$77000
Budgeted Cash Collection	$209500	$217,000.00	$226500	$653000

here question clearly say that 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 next month thats why the portionof 65% of sale we consider it in next month. All of the accounts receivable at June 30 will be collected in July.

Solution 2

Material Purchase Budget - Beech Corporation
Particulars	July	August	September	Total
Budgeted Cost of goods sold	$126,000.00	$138,000.00	$132,000.00	$396,000
Add: Desired ending merchandise inventory	$41400	$39600	$43200	$124200
Total Needs	$167400	$177600	$175200	$520200
Less: Opening Inventory	$62,000.00	$41400	$39600	$143000
Required purchases	$105400	$136,200.00	$135600	$377200

Each month’s ending inventory must equal 30% of the cost of next month’s sales. so here in july month the next month cost of sale 138000 and its 30%is 41400. that is need for july month. in the month of september the next month sale is 240000. ans its cost is 60% means 240000*60%=144000. so its 30% is need in sept. =43200.

The cost of goods sold is 60% of sales.

Solution 2b:

Schedule of expected cash disbursement for merchandise purchases - Beech Corporation
Particulars	July	August	September	Total
Payables from June	$71,100.00			$71,100.00
July Purchases	$42160 (40%)	$63240 (60%)		$105400
August Purchases		$54480(40%)	$81720(60%)	$136,200.00
September Purchases			$54240 (40%)	$54240
Total payments in month	$113260.00	$117720.00	$135960.00	366940.00

here question says The company pays for 40% of its 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.

Solution 3:

Income Statement - Beech Corporation
For Quarter Ended - September 30
Particulars	Amount
Sales	$660,000.00
Cost of Sales	$396,000.00
Gross Profit	$264,000.00
Operating Expenses:
Selling and adminstrative expenses	$180,000.00
Net Income	$84,000.00

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

here we take total 60000 foe 3 month and deprication is also include it . deprciation is apart of income statement  so we consider the total amount of 60000 here.

Solution 4:

Balance Sheet- Beech Corporation
30-Sep
Particulars	Amount
Assets:
Cash ($90,000 + $653000 - $366940 - $165000)	$211060
Accounts receivables ($220,000*65%)	$143000
Inventory	$43200
Plant and equipment net of depreciation ($210,000 - $15,000)	$195,000.00
Total Assets	$592260.00
Liabilities and stockholder's Equity:
Accounts payable ($135600*60%)	$81360 .00
Common Stock	$327,000.00
Retained Earnings ($99,900 + $84,000)	$183,900.00
Total liabilities and stockholders equity	$592260.00

here the closing inventory 43200is september month ending inventory is next month 30% means 240000*60%=144000. so its 30% is need in sept. =43200.