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:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	90,000
Accounts receivable		136,000
Inventory		62,000
Plant and equipment, net of depreciation		210,000
Total assets	$	498,000
Liabilities and Stockholders’ Equity
Accounts payable	$	71,100
Common stock		327,000
Retained earnings		99,900
Total liabilities and stockholders’ equity	$	498,000
Beech’s managers have made the following additional assumptions and estimates: 1. Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, 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 $60,000. Each month $5,000 of this total amount is depreciation expense and the remaining $55,000 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

Answer 1

Expected Cash Collections:

	July	August	September
Collections from:
- Current Month Sales (35%)	73,500	80,500	77,000
- Previos Month Sales (65%)	1,36,000	1,36,500	1,49,500
Total Cash Collections	2,09,500	2,17,000	2,26,500

Total for whole Quarter = 653,000

Answer 2-a

Merchandise Purchase Budget:

	July	August	September	October
Sales	2,10,000	2,30,000	2,20,000	2,40,000
Cost of Goods Sold	1,26,000	1,38,000	1,32,000	1,44,000
Desired Closing Inventory	41,400	39,600	43,200	Data Unavailable
Opening Inventory	62,000	41,400	39,600	43,200
Purchases	1,05,400	1,36,200	1,35,600	Data Unavailable

Answer 2-b

Expected Cash Disbursement for merchandise:

	July	August	September
Purchases	1,05,400	1,36,200	1,35,600
Payment for:
- Current Month Purchase (40%)	42,160	54,480	54,240
- Previos Month Purchase (60%)	71,100	63,240	81,720
Total	1,13,260	1,17,720	1,35,960

Answer 3

Income Statement for Quarter ended on September 30

Sales	6,60,000
Cost of Goods Sold	3,96,000
Gross Profit	2,64,000
Selling & Admin Expense	1,65,000
Depreciation	15,000
Net Income	84,000

Asnwer 4

Balance Sheet of Beech Corporation as on September 30

Assets
Cash	2,11,060
Accounts Receivable	1,43,000
Inventory	43,200
Plant & Machinery, net of Depreciation	1,95,000
Total Assets	5,92,260
Liability and Stockholder's Equity
Accounts Payable	81,360
Common Stock	3,27,000
Retained Earning	1,83,900
Total Liability and Stockholder's Equity	5,92,260