Question

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Wolfpack Company Balance Sheet June 30
Assets
Cash	$	91,400
Accounts receivable		67,200
Inventory		31,000
Buildings and equipment, net of depreciation		165,000
Total assets	$	354,600
Liabilities and Stockholders’ Equity
Accounts payable	$	62,600
Common stock		100,000
Retained earnings		192,000
Total liabilities and stockholders’ equity	$	354,600

Budgeting Assumptions:

1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.

2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase.

3. The budgeted inventory balance at July 31 is $19,800.

4. Depreciation expense is $3,300 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

5. The company’s cash budget for July shows expected cash collections of $96,300, expected cash disbursements for merchandise purchases of $72,000, and cash paid for selling and administrative expenses of $16,100.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1

1	For the month of July, calculate the following:
a.	Budgeted sales
i)	Expected cash collections		$96,300
ii)	June Cash collection Ratio		30%
iii)	Budgeted Sales		$321,000	i/ii
b.	Budgeted merchandise purchases
i)	Expected cash disbursements for merchandise purchases		$72,000
ii)	June Cash disbursements Ratio		20%
iii)	Budgeted merchandise purchases		$360,000	i/ii
c.	Budgeted cost of goods sold
i)	Beginning inventory		$31,000
ii)	Purchases during the period		$360,000
iii)	Budgeted ending Inventory		$19,800
iv)	Budgeted cost of goods sold		$371,200	i+ii-iii
d.	Budgeted net operating income
i)	Budgeted Sales		$321,000
ii)	Budgeted ending Inventory		$19,800
iii)	Beginning inventory		$31,000
iv)	Budgeted merchandise purchases		$360,000
v)	Depreciation expense		$3,300
vi)	Budgeted selling and administrative expenses		$16,100
vii)	Budgeted net operating income/(loss)		($69,600)	i+ii-iii-iv-v-vi
2	Prepare a budgeted balance sheet as of July 31.
	Wolfpack Company
	Budgeted Balance Sheet
	Jul-31
	Assets
	Cash (Working Note: a)	$	104,200
	Accounts receivable (Working Note: b)		224,700
	Inventory		19,800	Given
	Buildings and equipment, net of depreciation		161,700	($165000-$3300)
	Total assets	$	510,400
	Liabilities and Stockholders’ Equity
	Accounts payable (Working Note: c)	$	288,000
	Common stock		100,000
	Retained earnings		122,400	($192000-69600)
	Total liabilities and stockholders’ equity	$	510,400
	Working Notes
a	Cash
	Opening Balance		$91,400
	June Account receivable		$67,200
	June Account payable		($62,600)
	Expected cash collections		$96,300
	Expected cash disbursements for merchandise purchases		($72,000)
	Budgeted selling and administrative expenses		($16,100)
	Closing cash		$104,200
b	Accounts receivable
	Opening Balance		$67,200
	June cash collections in July		($67,200)
	Budgeted Sales (all on account)		$321,000
	Expected cash collections		($96,300)
	Closing Account receivable		$224,700
c	Accounts payable
	Opening Balance		$62,600
	June Cash disbursements		($62,600)
	Budgeted merchandise purchases (all on account)		$360,000
	Expected cash disbursements for merchandise purchases		($72,000)
	Closing Account payable		$288,000