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	$	84,000
Accounts receivable		144,000
Inventory		63,750
Plant and equipment, net of depreciation		223,000
Total assets	$	514,750
Liabilities and Stockholders’ Equity
Accounts payable	$	84,000
Common stock		349,000
Retained earnings		81,750
Total liabilities and stockholders’ equity	$	514,750
Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, 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 75% 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 $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 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. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. Schedule of Expected Cash Collections Month July August September Quarter From July sales From August sales From September sales Total cash collections Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Merchandise Purchases Budget July August September Quarter Total needs Required purchases 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. Schedule of Cash Disbursements for Purchases July August September Quarter From July purchases From August purchases From September purchases Total cash disbursements Prepare an income statement for the quarter ended September 30. Beech Corporation Income Statement For the Quarter Ended September 30 Prepare a balance sheet as of September 30. Beech Corporation Balance Sheet September 30 Assets Total assets Liabilities and Stockholders' Equity Total liabilities and stockholders' equity

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					144,000			144,000
From July sales		(340,000*35%;65%)			119000	221000		340000
From August sales		(360,000*35%;65%)				126000	234000	360000
From September sales		(350,000*35%)					122500	122500
Total cash collections					263,000	347000	356500	966,500
			Accounts receivable 350,000*65%=				227500
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(75% of sales)		255000	270000	262500	787500		277500
Add:Desired ending merchandise inventory					67500	65625	69375	69375
total needs					322500	335625	331875	856875
less: Beginning merchandise inventory					63,750	67500	65625	63,750
Required purchased					258,750	268125	266250	793,125
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					84,000			84,000
From July purchases		(258,750*40%;60%)			103500	155250		258750
From august purchases		(268,125*40%;60%)				107250	160875	268125
From September purchases			(266250*40%)				106500	106500
total cash disbursements					187,500	262500	267375	717,375
		Accounts payable		266250*60%		159750
3)		Income Statement
	Sales						1050000
	cost of goods sold		(1050000*75%)				787500
	Gross profit						262500
	Selling and administrative expense				(44000*3)		132000
	net operating income						130500
	interest expense						0
	net income (loss)						130500
4)		Balance sheet
	Assets
	Cash		(84000+966,500-717,375 -38000*3)				219,125
	Account receivable						227500
	inventory						69375
	Plant and Equipment,net			(223,000-6000*3)			205000
	Total Assets						721000
	Liabilities and Stockholders Equity
	Accounts payable						159750
	Capital Stock						349,000
	Retained earnings		(81,750+130,500)				212250
	Total liabilities & Stockholder's Equity						721000