Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Deacon Company Balance Sheet March 31
Assets
Cash	$	68,200
Accounts receivable		42,000
Inventory		63,400
Buildings and equipment, net of depreciation		122,000
Total assets	$	295,600
Liabilities and Stockholders’ Equity
Accounts payable	$	96,400
Common stock		70,000
Retained earnings		129,200
Total liabilities and stockholders’ equity	$	295,600

Budgeted Income Statements
	April			May			June
Sales	$	178,000		$	188,000		$	208,000
Cost of goods sold		106,800			112,800			124,800
Gross margin		71,200			75,200			83,200
Selling and administrative expenses		19,000			20,500			23,500
Net operating income	$	52,200		$	54,700		$	59,700

Budgeting Assumptions:

60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

Budgeted sales for July are $218,000.

10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase.

Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

Depreciation expense is $1,800 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

April = $163,040 May = $184,800 June = $201,600 Quarter $549,440

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Answer 1