Wheeling Company is a merchandiser that provided a balance sheet as of September
ID: 2554276 • Letter: W
Question
Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below: Wheeling Company Balance Sheet September 30 Assets Cash $ 72,200 Accounts receivable 162,000 Inventory 81,000 Buildings and equipment, net of depreciation 255,000 Total assets $ 570,200 Liabilities and Stockholders’ Equity Accounts payable $ 238,700 Common stock 216,000 Retained earnings 115,500 Total liabilities and stockholders’ equity $ 570,200 The company is in the process of preparing a budget for October and has assembled the following data: Sales are budgeted at $600,000 for October and $610,000 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 $81,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,550 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.
Explanation / Answer
Answer 1-a Sales Budget Oct Nov Sales 600,000 610,000 Cash Sales - 35% 210,000 213,500 Credit Sales - 65% 390,000 396,500 Budgeted Cash Collections Oct Cash Sales 210,000 Collection from Accounts Receivables Accounts Receivables - Sep 162,000 Oct Sales - $390,000 X 40% 156,000 Total cash Collections 528,000 Answer 1-b. Merchandise Purchase Budget Oct Nov Cost of Goods Sold - 45% of Sales 270,000 274,500 Add: Ending Inventory - $274,500 X 30% 82,350 Total Needs 352,350 Less: opening Inventory (81,000) Required Purchases 271,350 Answer 1-c. Schedule of Cash payments to Suppliers Oct Cash Payment Accounts Payable - Sep 238,700 Oct Purchases - $271,350 X 30% 81,405 Total Cash Payment to Suppliers 320,105 Cash budget Oct Opening cash Balance 72,200 Add: receipts Collection from Customers 528,000 Total Cash available 600,200 Less: Disbursements Cash Disbursement - Accounts Payable 320,105 Selling & Admn. Exp. - $86,800 81,200 Total Disbursement 401,305 Cash Balance Closing 198,895 Answer 1-d. Income Statement For the Month Ending Oct 31 Sales 600,000 Less: Cost of Goods Sold - 45% of sales 270,000 Gross Margin 330,000 Less: Selling & Admn. Exp. 83,750 Net Income 246,250 Answer 1-e. Balance Sheet As on Oct 31 Assets Current Assets Cash 198,895 Accounts receivables 234,000 Inventory 82,350 515,245 Fixed Assets Building & Equipment - $255,000 - $2,550 252,450 Total Assets 767,695 Liabilities Accounts Payable 189,945 Total liabilities 189,945 Shareholders's Equity Common Stock 216,000 Retained Earnings 361,750 Total Stockholders equity 577,750 Total liabilities & Stockholders' Equity 767,695 Schedule of Retained Earnings As on Oct 31 Opening Balance 115,500 Add: net income 246,250 Closing Balance 361,750 Answer 2-a Sales Budget Oct Nov Sales 600,000 610,000 Cash Sales - 35% 210,000 213,500 Credit Sales - 65% 390,000 396,500 Budgeted Cash Collections Oct Cash Sales 210,000 Collection from Accounts Receivables Accounts Receivables - Sep 162,000 Oct Sales 195,000 Total cash Collections 567,000 Answer 2-b. Merchandise Purchase Budget Oct Nov Cost of Goods Sold - 45% of Sales 270,000 274,500 Add: Ending Inventory 27,450 Total Needs 297,450 Less: opening Inventory (81,000) Required Purchases 216,450 Answer 2-c. Schedule of Cash payments to Suppliers Oct Cash Payment Accounts Payable - Sep 238,700 Oct Purchases - 43,290 Total Cash Payment to Suppliers 281,990 Cash budget Oct Opening cash Balance 72,200 Add: receipts Collection from Customers 567,000 Total Cash available 639,200 Less: Disbursements Cash Disbursement - Accounts Payable 281,990 Selling & Admn. Exp. 81,200 Total Disbursement 363,190 Cash Balance Closing 276,010 Answer 2-d. Income Statement For the Month Ending Oct 31 Sales 600,000 Less: Cost of Goods Sold - 45% of sales 270,000 Gross Margin 330,000 Less: Selling & Admn. Exp. 83,750 Net Income 246,250 Answer 2-e. Balance Sheet As on Oct 31 Assets Current Assets Cash 276,010 Accounts receivables 195,000 Inventory 27,450 498,460 Fixed Assets Building & Equipment - $255,000 - $2,550 252,450 Total Assets 750,910 Liabilities Accounts Payable 173,160 Total liabilities 173,160 Shareholders's Equity Common Stock 216,000 Retained Earnings 361,750 Total Stockholders equity 577,750 Total liabilities & Stockholders' Equity 750,910 Schedule of Retained Earnings As on Oct 31 Opening Balance 115,500 Add: net income 246,250 Closing Balance 361,750
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