Question

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 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

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					145,000			145,000
From July sales		(330,000*35%;65%)			115500	214500		330000
From August sales		(350,000*35%;65%)				122500	227500	350000
From September sales		(340,000*35%)					119000	119000
Total cash collections					260,500	337000	346500	944,000
			Accounts receivable 340,000*65%=				221000
2-a)		Merchandise Purchase Budget
					July	August	September	Total		october
Budgeted cost of goods sold			(60% of sales)		198000	210000	204000	612000		216000
Add:Desired ending merchandise inventory					63000	61200	64800	64800
total needs					261000	271200	268800	676800
less: Beginning merchandise inventory					59,400	63000	61200	59,400
Required purchased					201,600	208200	207600	617,400
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					83,000			83,000
From July purchases		(201,600*40%;60%)			80640	120960		201600
From august purchases		(208200*40%;60%)				83280	124920	208200
From September purchases			(207600*40%)				83040	83040
total cash disbursements					163,640	204240	207960	575,840
		Accounts payable		207600*69%		124560
3)		Income Statement
	Sales						1020000
	cost of goods sold		(1020000*60%)				612000
	Gross profit						408000
	Selling and administrative expense				(42000*3)		126000
	net operating income						282000
	interest expense						0
	net income (loss)						282000
4)		Balance sheet
	Assets
	Cash		(94000+944000-575840-36000*3)				354,160
	Account receivable						221000
	inventory						64800
	Plant and Equipment,net			(222,000-6000*3)			204000
	Total Assets						843960
	Liabilities and Stockholders Equity
	Accounts payable						124560
	Capital Stock						331,000
	Retained earnings						388400
	Total liabilities & Stockholder's Equity						843960