Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10]

[The following information applies to the questions displayed below.]

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	$	73,000
Accounts receivable		125,000
Inventory		56,000
Plant and equipment, net of depreciation		221,000
Total assets	$	475,000
Liabilities and Stockholders’ Equity
Accounts payable	$	82,000
Common stock		309,000
Retained earnings		84,000
Total liabilities and stockholders’ equity	$	475,000

Exercise 8-12

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

1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, 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 70% 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 $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 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.

Prepare a schedule of expected cash collections for July, August, and September.

	Schedule of Expected Cash Collections Month July August September Quarter $0 From July sales 0 From August sales 0 From September sales 0 Total cash collections $0 $0 $0 $0

Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

	Merchandise Purchases Budget July August September Quarter Total needs Required purchases

Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

	Schedule of Cash Disbursements for Purchases July August September Quarter $0 From July purchases 0 From August purchases 0 From September purchases 0 Total cash disbursements $0 $0 $0 $0

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

	Beech Corporation Income Statement For the Quarter Ended September 30 0 0

Prepare a balance sheet as of September 30.

	Beech Corporation Balance Sheet September 30 Assets Total assets $0 Liabilities and Stockholders' Equity Total liabilities and stockholders' equity $0

Answer 1

Schedule of Expected Cash Collections
Particulars			July	August	September	Quarter
Sales			$ 320,000.00	$ 340,000.00	$ 330,000.00
Collection for:
Accounts Receivable			$ 125,000.00			$ 125,000.00
July			$ 112,000.00	$ 208,000.00		$ 320,000.00
August				$ 119,000.00	$ 221,000.00	$ 340,000.00
September					$ 115,500.00	$ 115,500.00
Total cash collections			$ 237,000.00	$ 327,000.00	$ 336,500.00	$ 900,500.00

	Merchandise Purchases Budget
							(Workings)
	Particulars			July	August	September	October	Quarter
	Sales			$ 320,000.00	$ 340,000.00	$ 330,000.00	$ 350,000.00
	Cost of Goods sold (70%)			$ 224,000.00	$ 238,000.00	$ 231,000.00	$ 245,000.00	$ 693,000.00
Add:	Desired ending inventory			$   59,500.00	$   57,750.00	$   61,250.00		$ 178,500.00
	Total needs			$ 283,500.00	$ 295,750.00	$ 292,250.00		$ 871,500.00
Less:	Beginning Inventory			$   56,000.00	$   59,500.00	$   57,750.00		$ 173,250.00
	Required purchase			$ 227,500.00	$ 236,250.00	$ 234,500.00		$ 698,250.00

Schedule of Cash Disbursements for Purchases
Particulars			July	August	September	Quarter
Required purchase			$ 227,500.00	$ 236,250.00	$ 234,500.00	$ 698,250.00
Payment for:
Accounts Payable			$   82,000.00			$   82,000.00
July			$   91,000.00	$ 136,500.00		$ 227,500.00
August				$   94,500.00	$ 141,750.00	$ 236,250.00
September					$   93,800.00	$   93,800.00
			$ 173,000.00	$ 231,000.00	$ 235,550.00	$ 639,550.00

	Income Statement
	Sales			$ 990,000.00
Less:	Cost of Goods sold			$ 693,000.00
	Gross Margin			$ 297,000.00
Less:	Selling and Adm. Expenses			$ 120,000.00
	Net Operating Income			$ 177,000.00

	Cash Budget
	Particulars			July	August	September
	Beginning Balance			$   73,000.00	$ 103,000.00	$ 165,000.00
	Cash collections			$ 237,000.00	$ 327,000.00	$ 336,500.00
	Total cash available			$ 310,000.00	$ 430,000.00	$ 501,500.00
Less:	Cash Disbursements
	Payment for purchases			$ 173,000.00	$ 231,000.00	$ 235,550.00
	Payment for selling and Adm			$   34,000.00	$   34,000.00	$   34,000.00
	Ending Balance			$ 103,000.00	$ 165,000.00	$ 231,950.00

Balance Sheet
Assets
Cash				$ 231,950.00
Accounts Receivable				$ 214,500.00
Inventory				$   61,250.00
Plant, Property and Equip				$ 203,000.00
Total Assets				$ 710,700.00
Liabilities and Stockholder's Equity
Accounts Payable				$ 140,700.00
Common Stock				$ 309,000.00
Retained Earnings				$ 261,000.00
Total liabilities and stockholders' equity				$ 710,700.00

Is this okay?