Question

In: Accounting

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter...

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 $ 76,000
Accounts receivable 137,000
Inventory 86,100
Plant and equipment, net of depreciation 230,000
Total assets $ 529,100
Liabilities and Stockholders’ Equity
Accounts payable $ 91,000
Common stock 312,000
Retained earnings 126,100
Total liabilities and stockholders’ equity $ 529,100

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

  1. Estimated sales for July, August, September, and October will be $410,000, $430,000, $420,000, and $440,000, 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 70% 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 $58,000. Each month $8,000 of this total amount is depreciation expense and the remaining $50,000 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.

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.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Solutions

Expert Solution

1.

Schedule of Expected Cash Collections
July August September Quarter
From accounts receivable* 137000 137000
From July sales 143500 266500 410000
From August sales 150500 279500 430000
From September sales 147000 147000
Total cash collections 280500 417000 426500 1124000

2-a.

Merchandise Purchases Budget
July August September Quarter
Budgeted cost of goods sold 287000 301000 294000 882000
Add: Desired ending merchandise inventory 90300 88200 92400 92400
Total needs 377300 389200 386400 974400
Less: Beginning merchandise inventory 86100 90300 88200 86100
Required purchases 291200 298900 298200 888300

Desired ending inventory for September = $440000 x 70% x 30% = $92400

2-b.

Schedule of Cash Disbursements for Purchases
July August September Quarter
From accounts payable 91000 91000
From July purchases 116480 174720 291200
From August purchases 119560 179340 298900
From September purchases 119280 119280
Total cash disbursements 207480 294280 298620 800380

3.

Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales revenue 1260000
Cost of goods sold (70% x $660000) 882000
Gross profit 378000
Less: Selling and administrative expenses 174000
Net income 204000

Selling and administrative expenses = $58000 x 3 = $174000

4.

Beech Corporation
Balance Sheet
September 30
Assets
Cash 249620
Accounts receivable ($420000 x 65%) 273000
Inventory 92400
Plant and equipment, net of depreciation 206000
[$230000 - ($8000 x 3)]
Total assets $ 821020
Liabilities and Stockholders' Equity
Accounts payable ($298200 x 60%) 178920
Common stock 312000
Retained earnings ($126100 + $204000) 330100
Total liabilities and stockholders' equity $ 821020

Cash = $76000 + $1124000 - $800380 - ($50000 x 3) = $249620


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