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 shown below:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	83,000
Accounts receivable		126,000
Inventory		69,750
Plant and equipment, net of depreciation		220,000
Total assets	$	498,750
Liabilities and Stockholders’ Equity
Accounts payable	$	81,000
Common stock		348,000
Retained earnings		69,750
Total liabilities and stockholders’ equity	$	498,750

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $310,000, $330,000, $320,000, and $340,000, 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 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 $58,000. Each month $6,000 of this total amount is depreciation expense and the remaining $52,000 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.

Answer 1

1) Schedule of expected cash collections:
	Month
	July	August	Sept.	Quarter
From accounts receivable	$               126,000.00			$    126,000.00
From July sales:
35% × 310,000	$               108,500.00			$    108,500.00
65% × 310,000		$ 201,500.00		$    201,500.00
From August sales:
35% × 330,000		$ 115,500.00		$    115,500.00
65% × 330,000			$  214,500.00	$    214,500.00
From September sales:
35% × 320,000			$  112,000.00	$    112,000.00
Total cash collections	$               234,500.00	$ 317,000.00	$  326,500.00	$    878,000.00
2) a. Merchandise purchases budget
	July	August	Sept.	Total
Budgeted cost of goods sold (75% of sales)	$               232,500.00	$ 247,500.00	$  240,000.00	$    720,000.00
Add desired ending merchandise inventory*	$                 74,250.00	$   72,000.00	$    76,500.00	$      76,500.00
Total needs	$               306,750.00	$ 319,500.00	$  316,500.00	$    796,500.00
Less beginning merchandise inventory	$                 69,750.00	$   74,250.00	$    72,000.00	$      69,750.00
Required purchases	$               237,000.00	$ 245,250.00	$  244,500.00	$    726,750.00
b.Schedule of cash disbursements for purchases
	July	August	Sept.	Total
From accounts payable	$                 81,000.00			$      81,000.00
For July purchases	$                 94,800.00	$ 142,200.00		$    237,000.00
For August purchases		$   98,100.00	$  147,150.00	$    245,250.00
For September purchases			$    97,800.00	$      97,800.00
Total cash disbursements	$               175,800.00	$ 240,300.00	$  244,950.00	$    661,050.00
3)
Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales ($310,000 + $330,000 + $320,000)	$               960,000.00
Cost of goods sold (Part 2a)	$               720,000.00
Gross margin	$               240,000.00
Selling and administrative expenses ($58,000 × 3 months)	$               174,000.00
Net operating income	$                 66,000.00
Interest expense	$                              -
Net income	$                 66,000.00
4)
Beech Corporation
Balance Sheet
30-Sep
Assets
Cash ($83,000 + $878,000 – $661050 – ($52,000 × 3))	$               143,950.00
Accounts receivable ($320,000 × 65%)	$               208,000.00
Inventory (Part 2a)	$                 76,500.00
Plant and equipment, net ($220,000 – ($6,000 × 3))	$               202,000.00
Total assets	$               630,450.00
Liabilities and Stockholders’ Equity
Accounts payable ($244,500 × 60%)	$               146,700.00
Common stock (Given)	$               348,000.00
Retained earnings ($69,750 + $66,000)	$               135,750.00
Total liabilities and stockholders’ equity	$               630,450.00