Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Deacon Company Balance Sheet March 31
Assets
Cash	$	55,400
Accounts receivable		41,200
Inventory		53,200
Buildings and equipment, net of depreciation		180,000
Total assets	$	329,800
Liabilities and Stockholders’ Equity
Accounts payable	$	143,500
Common stock		70,000
Retained earnings		116,300
Total liabilities and stockholders’ equity	$	329,800

Budgeted Income Statements
	April			May			June
Sales	$	144,000		$	154,000		$	174,000
Cost of goods sold		86,400			92,400			104,400
Gross margin		57,600			61,600			69,600
Selling and administrative expenses		20,300			21,800			24,800
Net operating income	$	37,300		$	39,800		$	44,800

Budgeting Assumptions:

1. 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

2. Budgeted sales for July are $184,000.

3. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.

4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

5. Depreciation expense is $1,750 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Answer 1

ANSWER

	April	May	June	Quarter	July
Total sales T	$144,000	154000	174000	472000	184000
Credit sales C= (40%*T)	$57,600	$61,600	$69,600	$188,800
Schedule of Expected Cash Collections
Cash Sales (60% for cash) S	$86,400	$92,400	$104,400	$283,200
Credit Sales same month D= (20%*T)	$11,520	$12,320	$13,920	$37,760
Credit sales next month (C-D)*80%	41200	$46,080	$49,280	$136,560
Total Collections	$139,120	$150,800	$167,600	$457,520
Merchandise Purchases Budget
	April	May	June	Quarter	April
Budgeted Cost of Goods Sold (60%*sales)	$86,400	$92,400	$104,400	$283,200	$110,400
Add Desired Ending Inventory (50%*next COGS)+10000	$56,200	$62,200	$65,200	$65,200.0
Total Needs	$142,600	$154,600	$169,600	$348,400
Less Beginning Inventory	$53,200	$56,200	$62,200	$53,200
Required Purcahses	$89,400	$98,400	$107,400	$295,200
Schedule of Expected Cash Disbursements- Merchandise Purchases
(10% in same month and 90% in next month)	April	May	June	Quarter
March Purchases	$143,500			$143,500
April Purchases	$8,940	$80,460		$89,400
May Purchases		$9,840	$88,560	$98,400
June Purchases			$10,740	$10,740
Total cash Disbursements	$152,440	$90,300	$99,300	$342,040
Cash Budget
	April	May	June	Quarter
Beginnning Cash Balance	55,400	$23,530	$63,980	55,400
Add Cash Collections	139,120	150,800	167,600	457,520
Total Cash Avail	194,520	174,330	231,580	512,920
Less Cash Disbursements
For Inventory	$152,440	$90,300	$99,300	$342,040
For Selling & administrative Expenses (excluding dep)	18550	20050	23050	61650
	20300-1750	21800-1750	24800-1750
Total Cash Disbursements	$170,990	$110,350	$122,350	$403,690
Excess(Deficiency) of Cash	$23,530	$63,980	$109,230	$109,230
Ending Cash Balance	$23,530	$63,980	$109,230	$109,230
Income statement
sales		472000
Less;: Cost of Good sold		$283,200
Gross profit		$188,800
Less: S & A exp		66900
Net Income		$121,900
Balance sheet
Current assets
Cash	109,230
Accounts receivable (69600*80%)	55,680
Inventory	65,200
Total Current assets	230,110
Building and equipment, net (180000-(1750*3))	174750
Total assets	404,860
Liabilities & stockholder equity
Current liabilities
Accounts payable	96,660
Total current liabilities	96,660
stockholder equity
Common stock	70000
Retained earnings (116300+121900)	$238,200
Totl stockholder equity	$308,200
Total Liabilities & stockholder equity	$404,860

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