Question

Problem 8-27 Cash Collections; Cash Disbursements; Budgeted Balance Sheet [LO8-2, LO8-3, LO8-4, LO8-10]

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