Question

Required information [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 Beech’s managers have made the following additional assumptions and estimates: 1.Estimated sales for July, August, September, and October will be $360,000, $380,000, $370,000, and $390,000, 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 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. 4.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. 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. 4. Prepare a balance sheet as of September 30.

Answer 1

(1) CASH COLLECTIONS SCHEDULE
	July	August	Sept	quarter
From acc Receivable	142000			142000
From July sales(45/55)	162000	198000		360000
From august sales(45/55)		171000	209000	380000
from Sept sales(45)			166500	166500
Total Monthly Cash Collection	304000	369000	375500	1048500
(2) MERCHANDIZE PURCHASE SCHEDULE
	July	August	Sept	quarter
Budgeted COGS	216000	228000	222000	666000
Desired ending Inv	34200	33300	35100	35100	=390000*0.6*0.15 = 35100
Total needs	250200	261300	257100	701100
Beginning Inventory (Less)	54000	34200	33300	54000
Required Purchases	196200	227100	223800	647100
(2-b) MERCHANDIZE PAYMENT SCHEDULE
	July	August	Sept	quarter
From account payable	86000			86000
From july purchases	58860	137340		196200
From August purchases		68130	158970	227100
From Sept purchases			67140	67140
Total cash disbursment	144860	205470	226110	576440
(3) INCOME STATEMENT
	July	August	Sept	TOTAL
Estimated Sales	360000	380000	370000	1110000
Less: COGS	216000	228000	222000	666000
Gross Profit	144000	152000	148000	444000
Less
Selling and administrative expenses	48000	48000	48000	144000
Net Profit	96000	104000	100000	300000
Beech Corporation
Balance Sheet
30-Jun
Assets
Cash	444060	=1048500-576440-41000*3+95000
Accounts receivable	203,500	=370000*0.55
Inventory	35,100	from schedule
Plant and equipment, net of depreciation	204,000	=225000-21000
Total assets	$886,660
Liabilities and Stockholders’ Equity
Accounts payable	156660	=223800*0.7
Common stock	332,000
Retained earnings	398,000	(98000+300000)
Total liabilities and stockholders’ equity	$886,660