Question

Exercise 8-18 Cash Flows; Budgeted Income Statement and Balance Sheet [LO8-2, LO8-3, LO8-9, LO8-10]

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Wolfpack Company Balance Sheet June 30
Assets
Cash	$	79,200
Accounts receivable		68,600
Inventory		40,200
Buildings and equipment, net of depreciation		213,000
Total assets	$	401,000
Liabilities and Stockholders’ Equity
Accounts payable	$	56,000
Common stock		100,000
Retained earnings		245,000
Total liabilities and stockholders’ equity	$	401,000

Budgeting Assumptions:

1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.
2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase. The accounts payable at June 30 will be paid in July.
3. The budgeted inventory balance at July 31 is $25,700.
4. Depreciation expense is $4,260 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
5. The company’s cash budget for July shows expected cash collections of $106,100, expected cash disbursements for merchandise purchases of $68,100, and cash paid for selling and administrative expenses of $20,740.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Prepare a budgeted balance sheet as of July 31.

	Wolfpack Company Balance Sheet July 31 Assets Total assets Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity

Answer 1

Solution 1a:

Computation of budgeted Sales for July - Wolfpack Company
Particulars	Amount
Expected cash collection for July	$106,100.00
Less: Cash collection for June Sale	$68,600.00
Cash Collection for July Sale	$37,500.00
% collection in July	30%
Budgeted Sales for July	$125,000.00

solution 1b:

Computation of budgeted Merchandise Purchases for July - Wolfpack Company
Particulars	Amount
Expected cash disbursement for merchandise in July	$68,100.00
Less: Cash paid for June purchase	$56,000.00
Cash paid for July Purchase	$12,100.00
% payment in July	20%
Budgeted Merchandise purchase for July	$60,500.00

solution 1c:

Computation of budgeted cost of goods sold for July - Wolfpack Company
Particulars	Amount
Beginning inventory	$40,200.00
Add: Purchases in July	$60,500.00
Less: Ending inventory in July	$25,700.00
Budgeted cost of goods sold	$75,000.00

Solution 1d:

Computation of budgeted operating income for July - Wolfpack Company
Particulars	Amount
Sales	$125,000.00
Cost of goods sold	$75,000.00
Gross Margin	$50,000.00
Depreciation Expense	$4,260.00
Selling and administrative expense	$20,740.00
Budgeted net operating income	$25,000.00

Solution 2:

Wolfpack Company
Balance Sheet - July 31
Particulars	Amount
Asset:
Cash ($79,200 + $106,100 - $68,100 - $20,740)	$96,460.00
Accounts Receivables	$87,500.00
Inventory	$25,700.00
Building and equipment net of depreciation ($213,000 - $4,260)	$208,740.00
Total Assets	$418,400.00
Liabilities & Stockholder's Equity:
Accounts payable	$48,400.00
Common Stock	$100,000.00
Retained earnings ($245,000 + $25,000)	$270,000.00
Total liabilties and stockholder's Equity	$418,400.00