Question

[The following information applies to the questions displayed below.] 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 $ 80,000 Accounts receivable 135,000 Inventory 41,250 Plant and equipment, net of depreciation 211,000 Total assets $ 467,250 Liabilities and Stockholders’ Equity Accounts payable $ 72,000 Common stock 345,000 Retained earnings 50,250 Total liabilities and stockholders’ equity $ 467,250 Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $220,000, $240,000, $230,000, and $250,000, respectively. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 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

Ques 1
	Month
	July	August	Sept.	Quarter
From accounts receivable	$         135,000			$                     135,000
From July sales:
45% × 220,000	$           99,000			$                       99,000
55% × 220,000		$                     121,000		$                     121,000
From August sales:
45% × 240,000		$                     108,000		$                     108,000
55% × 240,000			$                     132,000	$                     132,000
From September sales:
45% × 230,000			$                     103,500	$                     103,500
Total cash collections	$         234,000	$                     229,000	$                     235,500	$                     698,500
Ques 2
	July	August	Sept.	Total
Budgeted cost of goods sold	$         154,000	$                     168,000	$                     161,000	$                     483,000
(70% of sales)
Add desired ending merchandise inventory(15%)	$           25,200	$                       24,150	$                       26,250	$                       26,250
Total needs	$         179,200	$                     192,150	$                     187,250	$                     509,250
Less beginning merchandise inventory	$           41,250	$                       25,200	$                       24,150	$                       41,250
Required purchases	$         137,950	$                     166,950	$                     163,100	$                     468,000
for september ending invntory=250000*70%*15%
	July	August	Sept.	Total
From accounts payable	$           72,000			$                       72,000
For July purchases	$           41,385	$                       96,565		$                     137,950
For August purchases		$                       50,085	$                     116,865	$                     166,950
For September purchases			$                       48,930	$                       48,930
Total cash disbursements	$         113,385	$                     146,650	$                     165,795	$                     425,830
Ques 3
Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales ($220,000 + $240,000 + $230,000)	$         690,000
Cost of goods sold (Part 2a)	$         483,000
Gross margin	$         207,000
Selling and administrative expenses ($40,000 × 3 months)	$         120,000
Net operating income	$           87,000
Interest expense
Net income	$           87,000
Ques 4
Beech Corporation
Balance Sheet
Sep-30
Assets
Cash ($80,000 + $698,500 – $443,980 – ($34,000 × 3))	$         250,670
Accounts receivable ($230,000 × 55%)	$         126,500
Inventory (Part 2a)	$           26,250
Plant and equipment, net ($211,000 – ($6,000 ×3))	$         193,000
Total assets	$         596,420
Liabilities and Stockholders’ Equity
Accounts payable ($163100 × 70%)	$         114,170
Common stock (Given)	$         345,000
Retained earnings ($50,250 + $87,000)	$         137,250	$                                -
Total liabilities and stockholders’ equity	$         596,420