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	$	93,000
Accounts receivable		127,000
Inventory		45,000
Plant and equipment, net of depreciation		219,000
Total assets	$	484,000
Liabilities and Stockholders’ Equity
Accounts payable	$	80,000
Common stock		330,000
Retained earnings		74,000
Total liabilities and stockholders’ equity	$	484,000
Beech’s managers have made the following additional assumptions and estimates: -Estimated sales for July, August, September, and October will be $300,000, $320,000, $310,000, and $330,000, respectively. -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. -Each month’s ending inventory must equal 25% 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. -Monthly selling and administrative expenses are always $56,000. Each month $6,000 of this total amount is depreciation expense and the remaining $50,000 relates to expenses that are paid in the month they are incurred. -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. Also compute total cash collections for the quarter ended September 30. 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. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. 3. Prepare an income statement for the quarter ended September 30. 4. Prepare a balance sheet as of September 30.

Answer 1

Calculation of expected cash collection
	July	August	September	Total
Estimated Sale ($) (A)	300000	320000	310000	930000
Cash Collectiion
35% in the month of sale (A*35%)	105000	112000	108500	325500
65% in the next month of sale (A*65%)	127000	195000	208000	530000
	232000	307000	316500	855500
Merchandise Purchase Budget
	July	August	September	Total
Sales During the Month ($) (A)	300000	320000	310000	930000
Cost of goods sold	180000	192000	186000	558000
Add: Closing Stock (25% of next month sale)	80000	77500	82500	240000
Less: Opening Stock	45000	80000	77500	202500
Required Purchase	215000	189500	191000	595500
Cash disbursements for purchase budget	July	August	September	Total
Required Purchase ($) (A)	215000	189500	191000	595500
Cash disbursements
40% in the month of purchase (A*40%)	86000	75800	76400	238200
60% in the next month of purchase (A*60%)	80000	129000	113700	322700
Cash disbursements	166000	204800	190100	560900
Income statement for the quarter September,30
Particulars	Amount ($)
Sales	930000
Less:
Cost of goods sold (60% of sales)	558000
Gross margin	372000
Less:
Depreciation expenses (6000*3)	18000
Other selling and administrative expense (50000*3)	150000
Net Profit	204000
Balance sheet as on sept, 30
Assets	Amount ($)
Cash (93000+855500-560900-150000)	237600
Account receivable (310000*65%)	201500
Inventory	82500
Plant & equipment , net of dep (219000-18000)	201000
Total assets	722600
Liabilities and stakeholder equity
Accounts payable (191000*60%)	114600
common stock	330000
retained earnings (74000+204000)	278000
Total Liabilities and stakeholder equity	722600