Question

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 $ 94,000 Accounts receivable 145,000 Inventory 59,400 Plant and equipment, net of depreciation 222,000 Total assets $ 520,400 Liabilities and Stockholders’ Equity Accounts payable $ 83,000 Common stock 331,000 Retained earnings 106,400 Total liabilities and stockholders’ equity $ 520,400 Beech’s managers have made the following additional assumptions and estimates: 1.Estimated sales for July, August, September, and October will be $330,000, $350,000, $340,000, and $360,000, 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 30% of the cost of next month’s sales. The cost of goods sold is 60% 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 $42,000. Each month $6,000 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. 4. Prepare a balance sheet as of September 30.

Answer 1

1. Schedule of expected cash collections for July, August, and September including the total cash collection during the quarter ended September 30. (In Dollars).

Particulars	July	August	September	Quarter total
From Accounts Receivable	145,000			145,000
From July Sales	115,500	214,500		330,000
From August Sales		122,500	227,500	350,000
From September Sales			119,000	119,000
Total Cash Collections	260,500	337,000	346,500	944,000

Working Notes:

	July	August	September
Sales	330,000	350,000	340,000
Collection	330,000*35% = 115,500	330,000*65% = 214,500	350,000*65% = 227,500
		350,000*35% = 122,500	340,000*35%= 119,000

2-a. Statement merchandise purchases budget for July, August, and September. Including total merchandise purchases for the quarter ended September 30 (Amount in dollars)

Particulars	July	August	September	Quarter total
Budgeted Cost of goods sold	198,000	210,000	204,000	612,000
Add: Desired ending merchandise Inventory	63,000	61,200	64,800	189,000
Total Needs	261,000	271,200	268,800	801,000
Less: Beginning Merchandise inventory	59,400	63,000	61,200	-183,600
Required Purchase	201,600	208,200	207,600	617,400

Working Notes:

Particulars	July	August	September	October
Sales	330,000	350,000	340,000	360,000
Cost of goods sold @ 60% of sales	198,000	210,000	204,000	216,000
Desired Ending Inventory 30% of COGS next month	210,000*30% = 63,000	204,000*30% = 61,200	216,000*30% =64,800

2-b. schedule of expected cash disbursements for merchandise purchases for July, August, and September. Including total cash disbursements for merchandise purchases for the quarter ended September 30. (Amount in Dollars)

Particulars	July	August	September	Quarter total
For Accounts Payable	83,000
For July Purchases	80,640	120,960		201,600
For August Purchases		83,280	124,920	208,200
For September Purchases			83,040	83,040
Total Cash disbursements for merchandise inventory	163,640	204,240	207,960	575,840

Working Notes:

	July	August	September
Purchases	201,600	208,200	207,600
Payment	201,600*40% = 80,640	201,600*60% = 120,960	208,200*60% = 124,920
		208,200*40% =    83,280	207,600*40%=    83,040

3. Income statement for the quarter ended September 30

Particular	Amount in $	Amount in $
Sales	(330,000+350,000+340,000)	1,020,000
Less: Cost of goods sold	1,020,000*60%	612,000
Gross Profit		408,000
Less: Selling and administrative expenses excluding depreciation	36,000*3	108,000
Less: Depreciation	6,000*3	18,000
Net Income		282,000
Retained Earnings, beginning of quarter		106,400
Retained Earnings, Ending of quarter		388,400

4. Balance Sheet as of September 30

	Amount in $	Amount in $
Assets:
Cash		354,160
Accounts Receivable		221,000
Inventory		64,800
Plant and equipment, net of depreciation		204,000
Total Assets		843,960
Liabilities and stockholders’ equity
Accounts Payable		124,560
Common Stock		331,000
Retained Earnings		388,400
Total Liabilities and stockholders’ equity		843,960

Working Notes:

Cash	Amount in $
Beginning Balance	94,000
Add: Total Collection during the quarter	944,000
Less: Total payment made for merchandise inventory	575,840
Less: Payment made for selling and administrative expenses (36,000*3)	108,000
Closing Balance
Accounts Receivable is 65% of September sale 340,000*65%	221,000
Desired Inventory 30% of October COGS (360,000*60%*30%)	64,800
Plant and Equipment
Beginning balance	222,000
Less: Depreciation 6000*3	18,000
Closing Balance	204,000
Accounts payable is 60% of September purchases (207,600*60%)	124,560