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 $ 62,600
Accounts receivable 37,200
Inventory 41,500
Buildings and equipment, net of depreciation 174,000
Total assets $ 315,300
Liabilities and Stockholders’ Equity
Accounts payable $ 113,100
Common stock 70,000
Retained earnings 132,200
Total liabilities and stockholders’ equity $ 315,300

Budgeted Income Statements
April May June
Sales $ 105,000 $ 115,000 $ 135,000
Cost of goods sold 63,000 69,000 81,000
Gross margin 42,000 46,000 54,000
Selling and administrative expenses 15,400 16,900 19,900
Net operating income $ 26,600 $ 29,100 $ 34,100

Budgeting Assumptions:

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.
Budgeted sales for July are $145,000.
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.
Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
Depreciation expense is $1,500 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