Beech Corporation is a merchandising company that is preparing a master budget f

Question

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:

1.

Required information

Estimated sales for July, August, September, and October will be $250,000, $270,000, $260,000, and $280,000, 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 75% 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 $46,000. Each month $5,000 of this total amount is depreciation expense and the remaining $41,000 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.

Complete the following:

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. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

3. 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.

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

5. Prepare a balance sheet as of September 30.

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:

Explanation / Answer

July August September Quarter Sales 250000 270000 260000 Collection in current month @35% 87500 94500 91000 Collection in following month month @65% 162500 175500 Cash from accounts receivables 132000 Total cash 219500 257000 266500 743000 Cost of goods sold @ 75% of sales 187500 202500 195000 ADD:Ending inventory @30% 60750 58500 63000 LESS:Beginning inventory 56250 60750 58500 Purchases 192000 200250 199500 Paid for purchases @ 40% 75000 81000 78000 Paid for purchases @ 60% 112500 121500 Cash paid for account payable 75000 Paid 150000 193500 199500 income Statement Sales $     780,000 COGS $     585,000 Gross margin $     195,000 Selling and administrative expenses $      46,000 Net operating income $     149,000 Net income $     149,000

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