Question

Required information [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 $ 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: Estimated sales for July, August, September, and October will be $280,000, $300,000, $290,000, and $310,000, respectively. 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. 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. 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. 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.

Answer 1

1.

Schedule of expected cash collections:
	July	August	September	Total
Credit Sales:
June Sales	129000			129000
July Sales	98000	182000		280000
August Sales		105000	195000	300000
September Sales			101500	101500
Total Collections	227000	287000	296500	810500

2-a.

Merchandise purchase budget
	July	August	September	Total
Cost of goods sold (75%) of sales	210000	225000	217500	652500
Add: Ending inventory	56250	54375	58125	58125
(25% of next month's cost)
Total cost of goods neded	266250	279375	275625	710625
Less: Beginning inventory	52500	56250	54375	52500
Budgeted purchases	213750	223125	221250	658125

2-b.

Schedule of cash disbursements for purchases
	July	August	September	Total
Budgeted purchases	213750	223125	221250	658125
June Purchases	78000			78000
July Purchases	85500	128250		213750
August Purchases		89250	133875	223125
September Purchases			88500	88500
Cash payment for purchases	163500	217500	222375	603375

3.

BEECH CORPORATION
Budgeted Income statement
for the quarter ending September 30
Sales	870000
Less: Cost of goods sold	652500
Gross profit	217500
Less: Operating expenses
Depreciation	15000
Other operating expenses	141000
Total operating expenses	156000
Net operating income	61500