Estimated sales for July, August, September, and October will be $270,000, $290,

Question

Estimated sales for July, August, September, and October will be $270,000, $290,000, $280,000, and $300,000, 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 20% of the cost of next month’s sales. The cost of goods sold is 60% 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 $50,000. Each month $5,000 of this total amount is depreciation expense and the remaining $45,000 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.

Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

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

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.

Prepare an income statement for the quarter ended September 30.

Prepare a balance sheet as of September 30.

Explanation / Answer

July Aug Sep Sales             270,000             290,000             280,000 45% collection in 1st month             121,500             130,500             126,000 55% collection in 2nd month             148,500             159,500 Total collection             121,500             279,000             285,500 July Aug Sep COGS             162,000             174,000             168,000 Opening inventory                         -                 34,800               33,600 Ending inventory               34,800               33,600               36,000 Purchases             196,800             172,800             170,400 Payment in 1st month 30%               59,040               51,840               51,120 Payment in 2nd month 70%             137,760             120,960 Merchandise purchase budget               59,040             189,600             172,080 July Aug Sep Selling and admin exp               50,000               50,000               50,000 Less depreciation                  5,000                  5,000                  5,000 Total cash disbursement               45,000               45,000               45,000 Income statement July Aug Sep Sales             270,000             290,000             280,000 Less COGS             162,000             174,000             168,000 Gross profit             108,000             116,000             112,000 Less Selling and admin exp               50,000               50,000               50,000 Net profit               58,000               66,000               62,000

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