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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	$	70,000
Accounts receivable		134,000
Inventory		48,300
Plant and equipment, net of depreciation		212,000
Total assets	$	464,300
Liabilities and Stockholders’ Equity
Accounts payable	$	73,000
Common stock		306,000
Retained earnings		85,300
Total liabilities and stockholders’ equity	$	464,300

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

Estimated sales for July, August, September, and October will be $230,000, $250,000, $240,000, and $260,000, respectively.

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.

Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% 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.

Monthly selling and administrative expenses are always $42,000. Each month $7,000 of this total amount is depreciation expense and the remaining $35,000 relates to expenses that are paid in the month they are incurred.

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

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					134,000			134,000
From July sales		(230,000*35%;65%)			80500	149500		230000
From August sales		(250,000*35%;65%)				87500	162500	250000
From September sales		(240,000*35%)					84000	84000
Total cash collections					214,500	237000	246500	698,000
			Accounts receivable 240,000*65%=				156000
2-a)		Merchandise Purchase Budget
Budgeted cost of goods sold			(70% of sales)		161000	175000	168000	504000
Add:Desired ending merchandise inventory					52500	50400	54600	54600
total needs					213500	225400	222600	558600
less: Beginning merchandise inventory					48,300	52500	50400	48,300
Required purchased					165,200	172900	172200	510,300
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					73,000			73,000
From July purchases					66080	99120		165200
From august purchases						69160	103740	172900
From September purchases							68880	68880
total cash disbursements					139,080	168280	172620	479,980
		Accounts payable		172200*60%		103320
3)		Income Statement
	Sales						720000
	cost of goods sold						504000
	Gross profit						216000
	Selling and administrative expense				(42000*3)		126000
	net operating income						90000
	interest expense						0
	net income (loss)						90000
4)		Balance sheet
	Assets
	Cash						183,020
	Account receivable						156000
	inventory						54600
	Plant and Equipment,net						191000
	Total Assets						584620
	Liabilities and Stockholders Equity
	Accounts payable						103320
	Capital Stock						306,000
	Retained earnings						175300
	Total liabilities & Stockholder's Equity						584620