Schedules of Expected Cash Collections and Disbursements; Income Statement; Bala

Question

Schedules of Expected Cash Collections and Disbursements; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-9, LO8-10] [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 $ 70,000 Accounts receivable 134,000 Inventory 48,300 Plant and equipment, net of depreciation 212,000 Total assets $ 464,300 Liabilities and Stockholders’ Equity Accounts payable $ 73,000 Common stock 306,000 Retained earnings 85,300 Total liabilities and stockholders’ equity $ 464,300 Exercise 8-12 Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $230,000, $250,000, $240,000, and $260,000, 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 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. Monthly selling and administrative expenses are always $42,000. Each month $7,000 of this total amount is depreciation expense and the remaining $35,000 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.

Explanation / Answer

Schedule of Expected Cash Collections Month July August September Quarter From accounts receivable 134000 134000 From July sales 80500 149500 230000 From August sales 87500 162500 250000 From September sales 84000 84000 Total cash collections 214500 237000 246500 698000 Merchandise Purchases Budget July August September Total Budgeted cost of goods sold 161000 175000 168000 504000 Add: Desired ending merchandise inventory 52500 50400 54600 54600 Total needs 213500 225400 222600 558600 Less: Beginning merchandise inventory 48300 52500 50400 48300 Required purchases 165200 172900 172200 510300 Schedule of Cash Disbursements for Purchases July August September Total From accounts payable 73000 73000 From July purchases 66080 99120 165200 From August purchases 69160 103740 172900 From September purchases 68880 68880 Total cash disbursements 139080 168280 172620 479980 Income Statement For the Quarter Ended September 30 Sales 720000 Cost of goods sold 504000 Gross margin 216000 Depreciation 21000 Net operating income 195000 Selling and administrative expenses 105000 Net income 90000 Beech Corporation Balance Sheet Sep-30 Assets Cash 183020 Accounts receivable 156000     Inventory 54600 Plant and equipment, net 191000 Total assets 584620 Liabilities and Stockholders' Equity Accounts payable 103320 Common stock 306000 Retained earnings 175300 Total liabilities and stockholders' equity 584620 Schedule of Expected Cash Collections Month July August September Quarter From accounts receivable 134000 =SUM(B4:D4) From July sales =230000*35% =230000*65% =SUM(B5:D5) From August sales =250000*35% =250000*65% =SUM(B6:D6) From September sales =240000*35% =SUM(B7:D7) Total cash collections =SUM(B4:B7) =SUM(C4:C7) =SUM(D4:D7) =SUM(B8:D8) Merchandise Purchases Budget July August September Total Budgeted cost of goods sold =230000*70% =250000*70% =240000*70% =SUM(B14:D14) Add: Desired ending merchandise inventory =C14*30% =D14*30% =260000*70%*30% =D15 Total needs =B14+B15 =C14+C15 =D14+D15 =E14+E15 Less: Beginning merchandise inventory 48300 =B15 =C15 =B17 Required purchases =B16-B17 =C16-C17 =D16-D17 =E16-E17 Schedule of Cash Disbursements for Purchases July August September Total From accounts payable 73000 =SUM(B23:D23) From July purchases =B18*40% =B18*60% =SUM(B24:D24) From August purchases =C18*40% =C18*60% =SUM(B25:D25) From September purchases =D18*40% =SUM(B26:D26) Total cash disbursements =SUM(B23:B26) =SUM(C23:C26) =SUM(D23:D26) =SUM(B27:D27) Income Statement For the Quarter Ended September 30 Sales =230000+250000+240000 Cost of goods sold =B14+C14+D14 Gross margin =B32-B33 Depreciation =7000*3 Net operating income =B34-B35 Selling and administrative expenses =35000*3 Net income =B36-B37 Beech Corporation Balance Sheet 11202 Assets Cash =70000+E8-E27-B37 Accounts receivable =240000*65%     Inventory =D15 Plant and equipment, net =212000-B35 Total assets =SUM(B44:B48) Liabilities and Stockholders' Equity Accounts payable =D18*60% Common stock 306000 Retained earnings =85300+B38 Total liabilities and stockholders' equity =SUM(B51:B53)

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