Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10]

[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	$	94,000
Accounts receivable		145,000
Inventory		59,400
Plant and equipment, net of depreciation		222,000
Total assets	$	520,400
Liabilities and Stockholders’ Equity
Accounts payable	$	83,000
Common stock		331,000
Retained earnings		106,400
Total liabilities and stockholders’ equity	$	520,400

Exercise 8-12

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

1. Estimated sales for July, August, September, and October will be $330,000, $350,000, $340,000, and $360,000, 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 60% 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 $42,000. Each month $6,000 of this total amount is depreciation expense and the remaining $36,000 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.

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.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

Required schedules are as prepared below:

1. Sales Budget
Beech Corporation
Sales Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Sales	330,000	350,000	340,000	1,020,000
Total Sales	$330,000	$350,000	$340,000	$1,020,000
Beech Corporation
Schedule of expected Cash collections
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
June sales	145,000			145,000
July Sales (35% in same month, 65% in next month)	115,500	214,500		330,000
August sales		122,500	227,500	350,000
September sales			119,000	119,000
Total collections	260,500	337,000	346,500	944,000
2. Production Budget
Beech Corporation
Production Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Sale Units (a)	330,000	350,000	340,000	1,020,000
Cost of Sales (60% of sales ) (a)	198,000	210,000	204,000	612,000
Planned ending units (b)	63,000	61,200	64,800	64,800
Beginning units (c )	59,400	63,000	61,200	59,400
Required purchases (d)= (a+b-c)	201,600	208,200	207,600	617,400
Beech Corporation
Schedule of expected Cash payments
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Beginning Accounts Payable	$83,000			$83,000
July purchases	$80,640	$120,960		$201,600
August Purchases		$83,280	$124,920	$208,200
September purchases			$83,040	$83,040
Total payments (a+b+c+d)	$163,640	$204,240	$207,960	$575,840
Beech Corporation
Budgeted Income Statement
For the quarter ended September 30
Particulars	Amount ($)	Amount ($)
Sales		1,020,000
Less: Cost of goods sold (60% of sales)		612,000
Gross margin		408,000
Less: Selling and administartive exp
Depreciation (6,000*3)	18,000
Selling and adm (36,000*3)	108,000	126,000
Net Income		282,000
Beech Corporation
Budgeted balance Sheet
Sep-30
Assets
Cash (94,000+944,000-575,840-108,000)	354,160
Accounts Receivable	221,000
Inventory	64,800
Property and equipment Net	204,000
Prepaid insurance
Total assets	843,960
Liabilities and Stockholders' Equity
Accounts Payable purchases	124,560
Common Stock	331,000
Retained earnings (106,400+282,000)	388,400
Total liabilities and stockholders' equity	843,960