Question

In: Accounting

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter...

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.

Solutions

Expert Solution

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

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