Question

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	$	59,200
Accounts receivable		31,600
Inventory		47,500
Buildings and equipment, net of depreciation		119,000
Total assets	$	257,300
Liabilities and Stockholders’ Equity
Accounts payable	$	76,400
Common stock		70,000
Retained earnings		110,900
Total liabilities and stockholders’ equity	$	257,300

Budgeted Income Statements
	April			May			June
Sales	$	125,000		$	135,000		$	155,000
Cost of goods sold		75,000			81,000			93,000
Gross margin		50,000			54,000			62,000
Selling and administrative expenses		17,500			19,000			22,000
Net operating income	$	32,500		$	35,000		$	40,000

Budgeting Assumptions:

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.

Budgeted sales for July are $165,000.

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.

Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

Depreciation expense is $1,150 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

question : make 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

Deacon Company Budgeted Balance Sheet June 30
Assets
Cash	$	146700
Accounts receivable		49600
Inventory		59500
Buildings and equipment, net of depreciation		115550
Total assets	$	371350
Liabilities and Stockholders’ Equity
Accounts payable	$	86400
Common stock		70,000
Retained earnings		214950
Total liabilities and stockholders’ equity	$	371350

Computation of Purchase

Particulars	April	May	June
Cost of Goods Sold	75000.00	81000.00	93000.00
Less: Opening Stock	47500.00	50500.00	56500.00
	27500.00	30500.00	36500.00
Add: Closing Stock	50500.00	56500.00	59500.00
Purchase	78000.00	87000.00	96000.00

Computation of Closing Stock for June

%of cost of goods sold                                                   = 75000 / 125000*100

= 60%

Therefore, Cost of goods sold for June = 165000.00*60%

= 99000.00

Therefore, closing stock for june = (99000*50%) +10000.00

= 59500.00

Calculation of Closing Cash balance

Opening Balance = 59200.00

Cash Sales (415000*60%) = 249000.00

Cash received from Account
Receivable
(415000*40%-(155000*40%*80%)+31600) = 148000.00

Less: Cash Purchase(261000*10%) = (26100.00)
           Payment to Account Payable
           (261000-96000*90%)+76400 = (224900.00)
          Payment to Expenses = (58500.00)
Closing Cash Balance = 146700.00

Computation of Retained Earning

Opening Balance = 110900

Add: Net operating income(32500+35000+40000) = 107500

Less: Depreciation(1150*3) = (3450)

Closing Balance = 214950