Question

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

▪ Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.

▪ Collections are expected to be 85% in the month of sale and 15% in the month following the sale.

▪ The cost of goods sold is 60% of sales.

▪ The company desires an ending merchandise inventory equal to 80% 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 $21,200.

▪ Monthly depreciation is $21,000.

▪ Ignore taxes. Balance Sheet October 31 Assets Cash $22,000 Accounts receivable 83,000 Merchandise inventory 158,400 Property, plant and equipment (net of $594,000 accumulated depreciation) 1,004,000 Total assets $1,267,400 Liabilities and Stockholders' Equity Accounts payable $196,000 Common stock 620,000 Retained earnings 451,400 Total liabilities and stockholders' equity $1,267,400 Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December. c. Prepare Cash Budgets for November and December.

Answer 1

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

	November	December
Sales	330000	300000
Expected Cash Collections
Accounts Receivables (Given in the Question)	83000
November (85% in the month of sale)	280500	255000
	(330000*85%)	(300000*85%)
December (15% in the month following the sale)	49500	45000
	(330000*15%)	(300000*15%)
Total Expected Cash Collections	413000	300000

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

Merchandise Purchases Budget
Particulars	November	December
Cost of Goods Sold (60% of sales.)	$         198,000	$                         180,000
(Sale Value *60%)
Plus: Desired Ending Inventory	$         144,000	$                         153,600
(80% of the cost of goods sold in the following month)	(180000*80%)	($320000*60%*80%)
Total Needs	$         342,000	$                         333,600
Less: Estimated Beginning Inventory	$         158,400	$                         144,000
Required Purchases	$         183,600	$                         189,600

c. Prepare Cash Budgets for November and December.

Cash Budgets for November and December
	November	December
Cash disbursements for merchandise	$196,000	$         183,600
Other monthly cash expenses	$21,200	$21,200
Total cash disbursements	$217,200	$204,800
Beginning cash balance	$22,000	$217,800
Add cash receipts (from part a)	$413,000	$300,000
Total cash available	$435,000	$517,800
Less: cash disbursements	$217,200	$204,800
Excess (deficiency) of cash available over disbursements	$217,800	$313,000
Financing	$0	$0
Ending Cash Balance	$217,800	$313,000