Question

Exercise 8-18 Cash Flows; Budgeted Income Statement and Balance Sheet [LO8-2, LO8-3, LO8-9, LO8-10]

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Wolfpack Company Balance Sheet June 30
Assets
Cash	$	75,000
Accounts receivable		50,000
Inventory		30,000
Buildings and equipment, net of depreciation		150,000
Total assets	$	305,000
Liabilities and Stockholders’ Equity
Accounts payable	$	35,300
Common stock		100,000
Retained earnings		169,700
Total liabilities and stockholders’ equity	$	305,000

Budgeting Assumptions:

1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.
2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase. The accounts payable at June 30 will be paid in July.
3. The budgeted inventory balance at July 31 is $22,000.
4. Depreciation expense is $3,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
5. The company’s cash budget for July shows expected cash collections of $77,000, expected cash disbursements for merchandise purchases of $44,500, and cash paid for selling and administrative expenses of $15,000.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1