Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: Sales are budgeted at $310,000 for November, $330,000 for December, and $320,000 for January. Collections are expected to be 80% in the month of sale and 20% in the month following the sale. The cost of goods sold is 70% of sales. The company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,900. Monthly depreciation is $21,700. Ignore taxes.

Balance Sheet

October 31

Assets

Cash $ 22,700

Accounts receivable 83,700

Merchandise inventory 162,750

Property, plant and equipment (net of $601,000 accumulated depreciation) 1,011,000

Total assets $ 1,280,150

Liabilities and Stockholders' Equity

Accounts payable $ 196,700

Common stock 690,000

Retained earnings 393,450

Total liabilities and stockholders' equity $ 1,280,150

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Answer 1

Answer :

(a). Schedule of expected cash collections for November and December

Weller Industrial Gas Corporation Schedule of Expected cash collections
	November	December
Collection from Accounts Receivables	$83,700
Collection from sales :
-Collected in November ($310,000*80%)	$248,000
-Collected in December ($310,000*20%)		$62,000
December Sales
-Collected in December ($330,000*80%)		$264,000
Total cash Collection	$331,700	$326,000

(b). Merchandise purchases Budget for November and December

Weller Industries Gas corporation Merchandise purchases Budget
	November	December
Cost of goods sold(70% of sales)	$217,000	$231,000
Add : Desired ending merchandise inventory
-November month($231,000*75)	$173,250
-December month($320,000*70%*75%)		$168,000
Total needs	$390,250	$399,000
Less : Likely Beginning merchandise inventory	$162,750	$173,250
Budgeted merchandise purchase	$277,500	$225,750

(c).Cash Budgets for November and December

Weller Industrial Gas corporation Cash Budget For the month of November and December
	November	December
Beginning cash balance	$22,700	$135,800
ash Receipts:
Collection from customers	$331,700	$326,000
Total cash available	$354,400	$461,800
Cash disbursements :
For merchandise purchase	$196,700	$227,500
Other monthly expenses	$21,900	$21,900
Total cash disbursements	$218,600	$249,400
Excess of cash available over disbursements	$135,800	$212,400
Financing
Borrowings	$0	$0
Repayments	$0	$0
Interest expense	$0	$0
Total Financing	$0	$0
Ending cash balance	$135,800	$212,400

(d).Budgeted income statement for November and December

Weller industrial Gas corporation Budgeted income statement For the month of November and December
	November	December
Sales Revenue	$310,000	$330,000
Cost of goods sold	$217,000	$231,000
Gross profit	$93,000	$99,000
Operating expenses
Other monthly expenses	$21,900	$21,900
Depreciation	$21,700	$21,700
Total operation expenses	$43,600	$43,600
Net Income	$49,400	$55,400

(e). Budgeted balance sheet for the year ending of December

Weller Industries Gas Corporation Budgeted Balance sheet December 31
Asset	Amount
Cash	$212,400
Accounts Receivables ($330,000*20%)	$66,000
Merchandise inventory	$168,000
Property and equipment (net) ($10,11,000-$21,700-$21,700)	$967,600
Total Assets	$1,414,000
Liabilities and stockholder's equity
Accounts payable	$225,750
Common stock	$690,000
Retained earnings ($393,450+$49,400+$55,400)	$498,250
Total liabilities and stockholders equity	$1,414,000