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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	$	82,000
Accounts receivable		129,000
Inventory		52,500
Plant and equipment, net of depreciation		217,000
Total assets	$	480,500
Liabilities and Stockholders’ Equity
Accounts payable	$	78,000
Common stock		347,000
Retained earnings		55,500
Total liabilities and stockholders’ equity	$	480,500

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

1. Estimated sales for July, August, September, and October will be $280,000, $300,000, $290,000, and $310,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $52,000. Each month $5,000 of this total amount is depreciation expense and the remaining $47,000 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. 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

1	Schedule of expected cash collections:
				July	August	September	Quarter
	Estimated sales			280000	300000	290000	870000
	June credit sales collected			129000			129000
	July credit sales collected			126000	154000		280000
				(280000*45%)	(280000*55%)
	Aug credit sales collected				135000	165000	300000
					(300000*45%)	(300000*55%)
	Sep credit sales collected					130500	130500
						(290000*45%)
	Total cash collections			255000	289000	295500	839500
2
a.				Merchandise purchase budget
				July	August	September	Quarter
	Estimated sales			280000	300000	290000	870000
	Cost of goods sold			196000	210000	203000	609000
	(70% of sales)
	Add:Ending inventory			45000	43500	46500
	(15% of next month's sales)			(300000*15%)	(290000*15%)	(310000*15%)
	Total need			241000	253500	249500	744000
	Less:Beginning inventory			52500	45000	43500
					(300000*15%)	(290000*15%)
	Required purchase			188500	208500	206000	603000
b.		Schedule of expected cash disbursement for merchandise purchase
				July	August	September	Quarter
	Beginning accounts payable			78000	0	0	78000
	July purchases			56550	131950	0	188500
				(188500*30%)	(188500*70%)
	Aug purchases			0	62550	145950	208500
					(208500*30%)	(208500*70%)
	Sep purchases			0	0	61800	61800
						(206000*30%)
	Total cash disbursements			134550	194500	207750	536800
3		Income statement
					$	$
	Sales	(280000+300000+290000)				870000
	Less: Cost of goods sold			(870000*70%)		609000
	Gross profit					261000
	Less: Selling and administrative expenses				(52000*3)	156000
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