Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO7-2, LO7-4, LO7-9, LO7-10]

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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 $   74,000   Accounts receivable 143,000   Inventory 73,500   Plant and equipment, net of depreciation 224,000   Total assets $ 514,500 Liabilities and Stockholders’ Equity   Accounts payable $   85,000   Common stock 310,000   Retained earnings 119,500   Total liabilities and stockholders’ equity $ 514,500 Exercise 7-12 Beech’s managers have made the following additional assumptions and estimates: 1. Estimated sales for July, August, September, and October will be $350,000, $370,000, $360,000, and $380,000, respectively. 2. 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. 3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% 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. 4. Monthly selling and administrative expenses are always $46,000. Each month $7,000 of this total amount is depreciation expense and the remaining $39,000 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.       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 using an absorption income statement format. 4. Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					143,000			143,000
From July sales		(350,000*35%;65%)			122500	227500		350000
From August sales		(370,000*35%;65%)				129500	240500	370000
From September sales		(360,000*35%)					126000	126000
Total cash collections					265,500	357000	366500	989,000
			Accounts receivable 360,000*65%=				234000
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(70% of sales)		245000	259000	252000	756000		266000
Add:Desired ending merchandise inventory					77700	75600	79800	79800
total needs					322700	334600	331800	835800
less: Beginning merchandise inventory					73,500	77700	75600	73,500
Required purchased					249,200	256900	256200	762,300
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					85,000			85,000
From July purchases		(249200*40%;60%)			99680	149520		249200
From august purchases		(256,900*40%;60%)				102760	154140	256900
From September purchases			(256200*40%)				102480	102480
total cash disbursements					184,680	252280	256620	693,580
		Accounts payable		256200*60%		153720
3)		Income Statement
	Sales						1080000
	cost of goods sold		(1080000*70%)				756000
	Gross profit						324000
	Selling and administrative expense				(46000*3)		138000
	net operating income						186000
	interest expense						0
	net income (loss)						186000
4)		Balance sheet
	Assets
	Cash		(74000+989,000-693580 -39000*3)				252,420
	Account receivable						234000
	inventory						79800
	Plant and Equipment,net			(224,000-7000*3)			203000
	Total Assets						769220
	Liabilities and Stockholders Equity
	Accounts payable						153720
	Capital Stock						310,000
	Retained earnings		(119500+186,000)				305500
	Total liabilities & Stockholder's Equity						769220