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	$   76,000
Accounts receivable	137,000
Inventory	86,100
Plant and equipment, net of depreciation	230,000
Total assets	$ 529,100
Liabilities and Stockholders’ Equity
Accounts payable	$   91,000
Common stock	312,000
Retained earnings	126,100
Total liabilities and stockholders’ equity	$ 529,100

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

1.	Estimated sales for July, August, September, and October will be $410,000, $430,000, $420,000, and $440,000, respectively.
2.	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.
3.	Each month’s ending inventory must equal 20% of the cost of next month’s sales. The cost of goods sold is 70% 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.
4.	Monthly selling and administrative expenses are always $58,000. Each month $8,000 of this total amount is depreciation expense and the remaining $50,000 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. Also compute total cash collections for the quarter ended September 30.        Beech Corporation Schedule of Expected Cash Collections Month July August September Quarter From accounts receivable From July sales From August sales From September sales Total cash collections

2-a.	Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.
	Beech Corporation Merchandise Purchases Budget July August September Total Budgeted cost of goods sold Total needs Required purchases

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.
	Beech Corporation Schedule of Cash Disbursements for Purchases July August September Total From accounts payable From July purchases From August purchases From September purchases Total cash disbursements

3.	Prepare an income statement for the quarter ended September 30 using an absorption income statement format.
	Beech Corporation Income Statement For the Quarter Ended September 30

4.	Prepare a balance sheet as of September 30.

Answer 1

1. Expected cash collections :
	July	Aug	Sept	Quarter
from AR	137000			137000
from July sales	184500	225500		410000
from Aug sales		193500	236500	430000
from Sep sales			189000	189000
Total cash collections	321500	419000	425500	1166000
2a) Merchandise purchases budget:
	July	Aug	Sept	Quarter
Budgeted COGS 70%	287000	301000	294000	882000
ADD: Closing invent 20% of next COGS	60200	58800	61600	61600
Total needed	347200	359800	355600	943600
Less: Opening invent	86100	60200	58800	86100
Required purchases	261100	299600	296800	857500
2b) Cash disbursements for purchases:
	July	Aug	Sept	Quarter
From AP	91000			91000
from july purcha (30/70)	78330	182770		261100
from aug purcha		89880	209720	299600
from sep purcha			89040	89040
Total cash disbursements	169330	272650	298760	740740
3) Income Statement :
	Amount $
Sales	1260000
Less: COGS	882000
GP	378000
Less: expenses:
sell & admin	174000
Net Income	204000
4) Balance sheet:
Assets:	Amount $
cash	351260	76000+1166000-740740-150000=351260
AR	231000
Inventory	61600
Plant & Equip net of dep	206000
Total assets:	849860
Liabilities:	Amount $
AP	207760
CS	312000
RE (126100 +204000)	330100
Total liabilities:	849860