Question

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below: Wheeling Company Balance Sheet September 30 Assets Cash $ 72,200 Accounts receivable 162,000 Inventory 81,000 Buildings and equipment, net of depreciation 255,000 Total assets $ 570,200 Liabilities and Stockholders’ Equity Accounts payable $ 238,700 Common stock 216,000 Retained earnings 115,500 Total liabilities and stockholders’ equity $ 570,200 The company is in the process of preparing a budget for October and has assembled the following data: Sales are budgeted at $600,000 for October and $610,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October. The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold. All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October. Selling and administrative expenses for October are budgeted at $81,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,550 for the month. Required: 1. Using the information provided, calculate or prepare the following: a. The budgeted cash collections for October. b. The budgeted merchandise purchases for October. c. The budgeted cash disbursements for merchandise purchases for October. d. The budgeted net operating income for October. e. A budgeted balance sheet at October 31. 2. Assume the following changes to the underlying budgeting assumptions: (1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following: a. The budgeted cash collections for October. b. The budgeted merchandise purchases for October. c. The budgeted cash disbursements for merchandise purchases for October. d. Net operating income for the month of October. e. A budgeted balance sheet at October 31.

Answer 1

Answer 1-a
Sales Budget
	Oct	Nov
Sales	600,000	610,000
Cash Sales - 35%	210,000	213,500
Credit Sales - 65%	390,000	396,500
Budgeted Cash Collections
	Oct
Cash Sales	210,000
Collection from Accounts Receivables
Accounts Receivables - Sep	162,000
Oct Sales - $390,000 X 40%	156,000
Total cash Collections	528,000
Answer 1-b.
Merchandise Purchase Budget
	Oct	Nov
Cost of Goods Sold - 45% of Sales	270,000	274,500
Add: Ending Inventory - $274,500 X 30%	82,350
Total Needs	352,350
Less: opening Inventory	(81,000)
Required Purchases	271,350
Answer 1-c.
Schedule of Cash payments to Suppliers
	Oct
Cash Payment
Accounts Payable - Sep	238,700
Oct Purchases - $271,350 X 30%	81,405
Total Cash Payment to Suppliers	320,105
Cash budget
	Oct
Opening cash Balance	72,200
Add: receipts
Collection from Customers	528,000
Total Cash available	600,200
Less: Disbursements
Cash Disbursement - Accounts Payable	320,105
Selling & Admn. Exp. - $86,800	81,200
Total Disbursement	401,305
Cash Balance Closing	198,895
Answer 1-d.
Income Statement
For the Month Ending Oct 31
Sales		600,000
Less: Cost of Goods Sold - 45% of sales		270,000
Gross Margin		330,000
Less: Selling & Admn. Exp.		83,750
Net Income		246,250
Answer 1-e.
Balance Sheet
As on Oct 31
Assets
Current Assets
Cash	198,895
Accounts receivables	234,000
Inventory	82,350	515,245
Fixed Assets
Building & Equipment - $255,000 - $2,550		252,450
Total Assets		767,695
Liabilities
Accounts Payable		189,945
Total liabilities		189,945
Shareholders's Equity
Common Stock	216,000
Retained Earnings	361,750
Total Stockholders equity		577,750
Total liabilities & Stockholders' Equity		767,695
Schedule of Retained Earnings
As on Oct 31
Opening Balance		115,500
Add: net income		246,250
Closing Balance		361,750
Answer 2-a
Sales Budget
	Oct	Nov
Sales	600,000	610,000
Cash Sales - 35%	210,000	213,500
Credit Sales - 65%	390,000	396,500
Budgeted Cash Collections
	Oct
Cash Sales	210,000
Collection from Accounts Receivables
Accounts Receivables - Sep	162,000
Oct Sales	195,000
Total cash Collections	567,000
Answer 2-b.
Merchandise Purchase Budget
	Oct	Nov
Cost of Goods Sold - 45% of Sales	270,000	274,500
Add: Ending Inventory	27,450
Total Needs	297,450
Less: opening Inventory	(81,000)
Required Purchases	216,450
Answer 2-c.
Schedule of Cash payments to Suppliers
	Oct
Cash Payment
Accounts Payable - Sep	238,700
Oct Purchases -	43,290
Total Cash Payment to Suppliers	281,990
Cash budget
	Oct
Opening cash Balance	72,200
Add: receipts
Collection from Customers	567,000
Total Cash available	639,200
Less: Disbursements
Cash Disbursement - Accounts Payable	281,990
Selling & Admn. Exp.	81,200
Total Disbursement	363,190
Cash Balance Closing	276,010
Answer 2-d.
Income Statement
For the Month Ending Oct 31
Sales		600,000
Less: Cost of Goods Sold - 45% of sales		270,000
Gross Margin		330,000
Less: Selling & Admn. Exp.		83,750
Net Income		246,250
Answer 2-e.
Balance Sheet
As on Oct 31
Assets
Current Assets
Cash	276,010
Accounts receivables	195,000
Inventory	27,450	498,460
Fixed Assets
Building & Equipment - $255,000 - $2,550		252,450
Total Assets		750,910
Liabilities
Accounts Payable		173,160
Total liabilities		173,160
Shareholders's Equity
Common Stock	216,000
Retained Earnings	361,750
Total Stockholders equity		577,750
Total liabilities & Stockholders' Equity		750,910
Schedule of Retained Earnings
As on Oct 31
Opening Balance		115,500
Add: net income		246,250
Closing Balance		361,750