Question

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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	$	73,000
Accounts receivable		125,000
Inventory		56,000
Plant and equipment, net of depreciation		221,000
Total assets	$	475,000
Liabilities and Stockholders’ Equity
Accounts payable	$	82,000
Common stock		309,000
Retained earnings		84,000
Total liabilities and stockholders’ equity	$	475,000

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, respectively.

2. 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.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% 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.

4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred.

5. 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.

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.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Required information

[The following information applies to the questions displayed below.]

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	$	73,000
Accounts receivable		125,000
Inventory		56,000
Plant and equipment, net of depreciation		221,000
Total assets	$	475,000
Liabilities and Stockholders’ Equity
Accounts payable	$	82,000
Common stock		309,000
Retained earnings		84,000
Total liabilities and stockholders’ equity	$	475,000

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, respectively.

2. 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.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% 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.

4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred.

5. 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.

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.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September.

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.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Prepare a balance sheet as of September 30.

	Beech Corporation Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net Total assets $0 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $0

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

	Total cash collections Total cash disbursements

Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance $0

Answer 1

1) Schedule of expected cash collections ($)
Particulars	July	August	September	Total
Expected sales	320,000	340,000	330,000	990,000
Collections
Current month @35%	112,000	119,000	115,500	346,500
Subsequent month @65% of previous month	125,000	208,000	221,000	554,000
Total collections	237,000	327,000	336,500	900,500
Note
Amount of $125,000 for July pertains to the amount of accounts receivable as appearing in the Balance Sheet as of June 30.
2a) Merchandise purchases budget ($)
Particulars	July	August	September	October
Expected Sales	320,000	340,000	330,000	350000
Cost of goods sold @70% of above	224,000	238,000	231,000	245,000
Add: Closing inventory @25% of COGS	85,000	82,500	87,500	-
Less: Opening inventory	56,000	85,000	82,500
Purchases	253,000	235,500	236,000
Total purchases for the quarter = $724,500
2b) Schedule of expected cash disbursements due to purchases ($) Particulars July August September Total Purchases as per 2a 253,000 235,500 236,000 724,500 Disbursements Current month @40% 101,200 94,200 94,400 289,800 Subsequent month @60% of previous month 82,000 151,800 141,300 375,100 Total disbursements 183,200 246,000 235,700 664,900 Note Amount of $82,000 for July pertains to the amount of accounts payable as appearing in the Balance Sheet as of June 30. 3) Income statement for the quarter ended September 30 Particulars Amount ($) Sales 990,000 Less: COGS@70% 693,000 Gross margin 297,000 Less: Depreciation (6,000*3) 18,000 Other expenses (34,000*3) 102,000 Net profit 177,000 4) Balance Sheet for the quarter ended September 30 Assets Amount ($) Working Cash 206,600 73,000+900,500-664,900-102,000 Accounts receivable 214,500 330,000*65% Inventory 87,500 Calculated in 2a PPE (net of depreciation) 203,000 221,000-18,000 Total assets 711,600 Liabilities Amount ($) Working Accounts payable 141,600 191,000*60% Common stock 309,000 Unchanged Retained earnings 261,000 84,000+177,000 Total liabilities 711,600