Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

• Sales are budgeted at $380,000 for November, $400,000 for December, and $390,000 for January.
• Collections are expected to be 75% in the month of sale and 25% in the month following the sale.
• The cost of goods sold is 72% of sales.
• The company desires an ending merchandise inventory equal to 85% of the cost of goods sold in the following month.
• Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,000.
• Monthly depreciation is $20,800.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	21,800
Accounts receivable		82,800
Merchandise inventory		232,560
Property, plant and equipment (net of $608,000 accumulated depreciation)		1,018,000
Total assets	$	1,355,160
Liabilities and Stockholders' Equity
Accounts payable	$	195,800
Common stock		590,000
Retained earnings		569,360
Total liabilities and stockholders' equity	$	1,355,160

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Answer 1

ANSWER

1	November	December
Sales	380,000	400,000
Schedule of Expected Cash Collections
Accounts receivable	82,800
November sales	285,000	95,000
December sales		300,000
Total cash collections	367,800	395,000
2
Cost of goods sold	273,600	288,000
Add:Desired ending inventory	244,800	238,680
Total Needs	518,400	526,680
Less: Beginning Invetory	232,560	244,800
Required purchases	285,840	281,880
Cash disbursments for merchandise	195,800	285,840
3
	November	December
Cash receipts	367,800	395,000
Cash disbursements:
Disbursements for merchandise	195,800	285,840
Other monthly expenses	21,000	21,000
Total cash disbursements	216,800	306,840
Excess (deficiency) of cash available over disbursements	151,000	88,160
4	November	December
Sales	380,000	400,000
Cost of goods sold	273,600	288,000
Gross margin	106,400	112,000
Other monthly expenses	21,000	21,000
Depreciation	20,800	20,800
Net operating income	64,600	70,200

Statement of Financial Position
31-Dec
Assets:
Cash 151000+88160+21800	260,960
Accounts receivable (net of allowance for uncollectible accounts)	100,000
Inventory 390000*.72*.85	238,680
Property, plant and equipment (net of $649,600 accumulated depreciation)	976,400
Total assets	1,576,040
Liabilities and Stockholders’ Equity:
Accounts payable	281,880
Common stock	590,000
Retained earnings 569,360 +64600+70200	704,160
Total liabilities and stockholders’ equity	1,576,040

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