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	$	96,000
Accounts receivable		139,000
Inventory		70,200
Plant and equipment, net of depreciation		228,000
Total assets	$	533,200
Liabilities and Stockholders’ Equity
Accounts payable	$	89,000
Common stock		333,000
Retained earnings		111,200
Total liabilities and stockholders’ equity	$	533,200

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

Estimated sales for July, August, September, and October will be $390,000, $410,000, $400,000, and $420,000, 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 20% 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 $54,000. Each month $7,000 of this total amount is depreciation expense and the remaining $47,000 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:

4. Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					139,000			139,000
From July sales		(390,000*45%;55%)			175500	214500		390000
From August sales		(410,000*45%;55%)				184500	225500	410000
From September sales		(400,000*45%)					180000	180000
Total cash collections					314,500	399000	405500	1,119,000
			Accounts receivable 400,000*55%=				220000
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(60% of sales)		234000	246000	240000	720000		252000
Add:Desired ending merchandise inventory					49200	48000	50400	50400
total needs					283200	294000	290400	770400
less: Beginning merchandise inventory					70,200	49200	48000	70,200
Required purchased					213,000	244800	242400	700,200
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					89,000			89,000
From July purchases		(213000*30%;70%)			63900	149100		213000
From august purchases		(244,800*30%;70%)				73440	171360	244800
From September purchases			(242400*30%)				72720	72720
total cash disbursements					152,900	222540	244080	619,520
		Accounts payable		242400*70%		169680
3)		Income Statement
	Sales						1200000
	cost of goods sold		(1200000*60%)				840000
	Gross profit						480000
	Selling and administrative expense				(54000*3)		162000
	net operating income						318000
	interest expense						0
	net income (loss)						318000
4)		Balance sheet
	Assets
	Cash		(96000+1,119,000-619520 -47000*3)				454,480
	Account receivable						220000
	inventory						50400
	Plant and Equipment,net			(228000-7000*3)			207000
	Total Assets						931880
	Liabilities and Stockholders Equity
	Accounts payable						169680
	Capital Stock						333,000
	Retained earnings		(111200+318000)				429200
	Total liabilities & Stockholder's Equity						931880