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

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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	$	90,000
Accounts receivable		136,000
Inventory		62,000
Plant and equipment, net of depreciation		210,000
Total assets	$	498,000
Liabilities and Stockholders’ Equity
Accounts payable	$	71,100
Common stock		327,000
Retained earnings		99,900
Total liabilities and stockholders’ equity	$	498,000

Exercise 8-12

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

Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, 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 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.

Monthly selling and administrative expenses are always $60,000. Each month $5,000 of this total amount is depreciation expense and the remaining $55,000 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.

4. Prepare a balance sheet as of September 30.

Answer 1

1.

Schedule of collections:
	July	August	September	Total
Sales	210000	230000	220000	660000
Cash Collections:
June Sales	136000			136000
July Sales	73500	136500		210000
August Sales		80500	149500	230000
September Sales			77000	77000
Total collections	209500	217000	226500	653000

2.-a.

Merchandise Purchase Budget
	July	August	September	Total
Sales	210000	230000	220000	660000
Cost of goods sold	126000	138000	132000	396000
Add: Ending inventory	41400	39600	43200	43200
(30% of next month's cost)
Total goods required	167400	177600	175200	439200
Less: Beginning inventory	62000	41400	39600	62000
Merchandise purchases	105400	136200	135600	377200

2-b.

Cash payment for Merchandise Purchase
	July	August	September	Total
Budgetd purchases	105400	136200	135600	377200
June Purchases	71100			71100
July purchases	42160	63240		105400
August purchases		54480	81720	136200
September purchases			54240	54240
Cash payment for purchases	113260	117720	135960	366940

3 & 4.

Beech Corporation
Budgeted income statement for the quarter ending September 30
	July	August	September	Total
Sales Revenue	210000	230000	220000	660000
Cost of goods sold	126000	138000	132000	396000
Gross profit	84000	92000	88000	264000
Selling and administrative exp.	55000	55000	55000	165000
Depreciation expense	5000	5000	5000	15000
Total expenses	60000	60000	60000	180000
Net Income	24000	32000	28000	84000
Beech Corporation
Cash Budget for the quarter ending September 30
	July	August	September	Total
Beginning Cash Balance	90000	131240	175520	90000
Collections from customers	209500	217000	226500	653000
Cash available for disbursements	299500	348240	402020	743000
Cash disbursements:
For purchases	113260	117720	135960	366940
Selling and administrative expenses	55000	55000	55000	165000
Total cash disbursements	168260	172720	190960	531940
Ending Cash balance	131240	175520	211060	211060
Beech Corporation
Balance sheet as at September 30
Assets:
Cash		211060
Accounts Receivable		143000
Inventory		43200
Plant and equipment , net of depreciation		195000
Total Assets		592260
Liabilities and stockholders' equity
Accounts Payable		81360
Common stock		327000
Retained earnings		183900
Total liabilities and stockholders' equity		592260