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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 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 25% of the cost of next month’s sales. The cost of goods sold is 75% 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 $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.

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.

3. Prepare an income statement that computes net operating income for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					129,000			129,000
From July sales		(280,000*35%;65%)			98000	182000		280000
From August sales		(300,000*35%;65%)				105000	195000	300000
From September sales		(290,000*35%)					101500	101500
Total cash collections					227,000	287000	296500	810,500
			Accounts receivable 390,000*65%=				188500
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(75% of sales)		210000	225000	217500	652500
Add:Desired ending merchandise inventory					56250	54375	58125	58125
total needs					266250	279375	275625	710625
less: Beginning merchandise inventory					52,500	56250	54375	52,500
Required purchased					213,750	223125	221250	658,125
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					78,000			78,000
From July purchases					85500	128250		213750
From august purchases						89250	133875	223125
From September purchases							88500	88500
total cash disbursements					163,500	217500	222375	603,375
		Accounts payable		221250*60%=		132750
3)		Income Statement
	Sales						870000
	cost of goods sold						652500
	Gross profit						217500
	Selling and administrative expense				(52000*3)		156000
	net operating income						61500
	interest expense						0
	net income (loss)						61500
4)		Balance sheet
	Assets
	Cash						148,125
	Account receivable						188500
	inventory						58125
	Plant and Equipment,net						202000
	Total Assets						596750
	Liabilities and Stockholders Equity
	Accounts payable						132750
	Capital Stock						347,000
	Retained earnings		(81,750+130,500)				117000
	Total liabilities & Stockholder's Equity						596750