Wheeling Company is a merchandiser that provided a balance sheet as of September
ID: 2407988 • Letter: W
Question
Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:
The company is in the process of preparing a budget for October and has assembled the following data:
Sales are budgeted at $520,000 for October and $530,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.
The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.
All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.
Selling and administrative expenses for October are budgeted at $80,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,800 for the month.
Required:
1. Using the information provided, calculate or prepare the following:
a. The budgeted cash collections for October.
b. The budgeted merchandise purchases for October.
c. The budgeted cash disbursements for merchandise purchases for October.
d. The budgeted net operating income for October.
e. A budgeted balance sheet at October 31.
2. Assume the following changes to the underlying budgeting assumptions:
(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:
a. The budgeted cash collections for October.
b. The budgeted merchandise purchases for October.
c. The budgeted cash disbursements for merchandise purchases for October.
d. Net operating income for the month of October.
e. A budgeted balance sheet at October 31.
Wheeling CompanyBalance Sheet
September 30 Assets Cash $ 77,400 Accounts receivable 146,000 Inventory 70,200 Buildings and equipment, net of depreciation 280,000 Total assets $ 573,600 Liabilities and Stockholders’ Equity Accounts payable $ 251,100 Common stock 216,000 Retained earnings 106,500 Total liabilities and stockholders’ equity $ 573,600
Explanation / Answer
1) a) Calculation of Budgeted Cash Collections for October
Total Sales in October = $520,000
Cash Sales in October = $520,000*35% = $182,000
Credit Sales = Total Sales - Cash Sales
= $520,000 - $182,000 = $338,000
Cash Collections in October = Cash Sales+40% of October Credit Sales+Accounts Receivable September
= $182,000+(40%*$338,000)+$146,000
= $182,000+$135,200+$146,000 = $463,200
Therefore budgeted cash collections for October is $463,200.
b) Calculation of Budgeted Merchandise Purchases for October
Cost of goods sold for Novemeber = Sales in November*45%
= $530,000*45% = $238,500
Ending Merchandise Inventory for October = COGS in October*30%
= $238,500*30% = $71,550
Beginning Merchandise Inventory = $70,200
Cost of Goods Sold in October = Sales*45%
= $520,000*45% = $234,000
Budgeted Merchandise Purchases for October = COGS+Ending Inventory-Beginning Inventory
= $234,000+$71,550-$70,200 = $235,350
Therefore budgeted merchandise purchases for October is $235,350.
c) Calculation of budgeted cash disbursements for merchandise purchases for October
Cash Disbursements = 30% of October Purchases+September Accounts Payable
= ($235,350*30%)+$251,100 = $70,605+$251,100 = $321,705
d) Calculation of Net Operating Income for October (Amounts in $)
Sales (A) 520,000 Expenses Cost of Goods Sold 234,000 Sales and Administrative Expenses 80,000 Depreciation Expenses 2,800 Total Expenses (B) 316,800 Net Operating Income (A-B) 203,200Related Questions
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