Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10] [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 $ 95,000 Accounts receivable 142,000 Inventory 54,000 Plant and equipment, net of depreciation 225,000 Total assets $ 516,000 Liabilities and Stockholders’ Equity Accounts payable $ 86,000 Common stock 332,000 Retained earnings 98,000 Total liabilities and stockholders’ equity $ 516,000 Exercise 8-13 Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $360,000, $380,000, $370,000, and $390,000, respectively. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 15% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $48,000. Each month $7,000 of this total amount is depreciation expense and the remaining $41,000 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

1.

Schedule of Expected Cash Collections
	July	August	September	Quarter
From accounts receivable	142000			142000
From July sales	162000	198000		360000
From August sales		171000	209000	380000
From September sales			166500	166500
Total cash collections	304000	369000	375500	1048500

2-a.

Merchandise Purchases Budget
	July	August	September	Quarter
Budgeted cost of goods sold	216000	228000	222000	666000
Add: Desired ending merchandise inventory	34200	33300	35100	35100
Total needs	250200	261300	257100	701100
Less: Beginning merchandise inventory	54000	34200	33300	54000
Required purchases	196200	227100	223800	647100

*Desired ending inventory for September = $390000 x 60% x 15% = $35100

2-b.

Schedule of Cash Disbursements for Purchases
	July	August	September	Quarter
From accounts payable	86000			86000
From July purchases	58860	137340		196200
From August purchases		68130	158970	227100
From September purchases			67140	67140
Total cash disbursements	144860	205470	226110	576440

3.

Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales revenue ($360000 + $380000 + $370000)	1110000
Cost of goods sold (60% x $1110000)	666000
Gross profit	444000
Less: Selling and administrative expenses ($48000 x 3)	144000
Net income	300000

4.

Beech Corporation
Balance Sheet
September 30
Assets
Cash ($95000+$1048500-$576440-123000)	444060
Accounts receivable ($370000 x 55%)	203500
Inventory	35100
Plant and equipment, net of depreciation [$225000 - ($7000 x 3)]	204000
Total assets $	886660
Liabilities and Stockholders' Equity
Accounts payable ($223800 x 70%)	156660
Common stock	332000
Retained earnings ($98000 + $300000)	398000
Total liabilities and stockholders' equity $	886660