Question

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

• The company sells each unit for $45.

Budgeted Sales:

Month	October	November	December	January
Sales in Units	30,000	25,000	40,000	30,000

• Collections are expected to be 70% in the month of sale, 30% in the month following the sale.
• The A/R balance at September 30th will be collected in full in October.
• The cost of the merchandise is $38 per unit.
• In addition to meeting the current month’s sales demand, management wants to maintain and ending inventory balance of 10% of the next month’s sales.
• The beginning inventory balance at October 1st is 3,000 units.
• Payment for merchandise is made as follows: ½ paid in the month of the purchase, ½ paid the month following the purchase.
• The A/P balance at September 30th will be paid in full in October.
• A dividend was paid in October for $500,000.
• Minimum cash balance is $100,000.
• The company has a line of credit for $500,000 at an annual interest rate of 12%.
• Loans are taken out on first day of month borrowed and repaid at the end of the quarter with interest.

           

	Balance Sheet
	September 30
	Assets
	Cash.........................................................................................	$   100,000
	Accounts receivable................................................................	250,000
	Inventory.................................................................................	114,000
	Property, plant and equipment (net of $200,000 accumulated depreciation).......................	866,400
	Total assets..............................................................................	$1,330,400
	Liabilities and Stockholders’ Equity
	Accounts payable....................................................................	$   300,000
	Common stock.........................................................................	582,000
	Retained earnings....................................................................	448,400
	Total liabilities and stockholders’ equity................................	$1,330,400

            Required:

1. Prepare a Sales Budget for October, November, December, and Quarter.
2. Prepare a Schedule of Expected Cash Collections for October, November, December, and Quarter.
3. Prepare a Merchandise Purchases Budget for October, November, December, and Quarter.
4. Prepare a Schedule of Expected Cash Disbursements for October, November, December, and Quarter.
5. Prepare Cash Budgets for October, November, December, and Quarter.

Answer 1