Question

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

1.	Estimated sales for July, August, September, and October will be $240,000, $260,000, $250,000, and $270,000, respectively.
2.	All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 15% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $44,000. Each month $8,000 of this total amount is depreciation expense and the remaining $36,000 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 using an absorption income statement format.

             

4.	Prepare a balance sheet as of September 30.

  

Answer 1

I absence of information the following are assumed:

June 30 receivables = $129,000

June 30 payables = $78,000

June 30 cash balance = 0

Sales Budget
	July	August	September	Total
Budegeted Sales	240000	260000	250000	750000
Schedule of expected cash collections:
	July	August	September	Total
Credit Sales:
June Sales	129000			129000
July Sales	108000	132000		240000
August Sales		117000	143000	260000
September Sales			112500	112500
Total Collections	237000	249000	255500	741500
Merchandise purchase budget
	July	August	September	Total
Cost of goods sold (60%) of sales	144000	156000	150000	450000
Add: Ending inventory	23400	22500	24300	24300
(15% of next month's cost)
Total cost of goods neded	167400	178500	174300	474300
Less: Beginning inventory	21600	23400	22500	21600
Budgeted purchases	145800	155100	151800	452700
Schedule of cash disbursements for purchases
	July	August	September	Total
Budgeted purchases	145800	155100	151800	452700
June Purchases	78000			78000
July Purchases	43740	102060		145800
August Purchases		46530	108570	155100
September Purchases			45540	45540
Cash payment for purchases	121740	148590	154110	424440
Schedule of cash payments S&A expenses
	July	August	September	Total
Cash Expenses	36000	36000	36000	108000
Depreciation expense	8000	8000	8000	24000
Total S & A expenses	44000	44000	44000	132000
Cash Budget
	July	August	September	Total
Beginning cash balance	0	79260	143670	0
Add: Collections	237000	249000	255500	741500
Total cash available	237000	328260	399170	741500
Cash disbursements:
For purchases	121740	148590	154110	424440
For S& A expenses	36000	36000	36000	108000
				0
				0
Total cash disbursements	157740	184590	190110	532440
Ending Cash Balance	79260	143670	209060	209060
Excess / (Shortage)	79260	143670	209060	209060
Financing:
				0
				0
Total Financing	0	0	0	0
Ending Cash Balance	79260	143670	209060	209060
BEECH CORPORATION
Budgeted Income statement
for the quarter ending September 30
Sales	750000
Less: Cost of goods sold	450000
Gross profit	300000
Less: Operating expenses
Depreciation	24000
Other operating expenses	108000
Total operating expenses	132000
Net operating income	168000