Solomon, Inc. sells fireworks. The company’s marketing director developed the fo

Question

Solomon, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July. April May June July Budgeted cost of goods sold $80,000 $90,000 $100,000 $106,000 Solomon had a beginning inventory balance of $3,300 on April 1 and a beginning balance in accounts payable of $15,200. The company desires to maintain an ending inventory balance equal to 15 percent of the next period’s cost of goods sold. Solomon makes all purchases on account. The company pays 65 percent of accounts payable in the month of purchase and the remaining 35 percent in the month following purchase. Required

A) Prepare an inventory purchases budget for April, May, and June.

B) Determine the amount of ending inventory Solomon will report on the end-of-quarter pro forma balance sheet.

C) Prepare a schedule of cash payments for inventory for April, May, and June.

D) Determine the balance in accounts payable Solomon will report on the end-of-quarter pro forma balance sheet.

Explanation / Answer

1) Inventory purchase budget April May june july budgeted cost of goods sold 80,000 90,000 100,000 106,000 Add ending inventory 15% 13500 15,000 15900 total needs 93,500 105,000 115,900 less beginning inventory -3,300 -13,500 -15,000 purchase required 90,200 91,500 100,900 2) Ending inventory of 15,900 will be reported 3) Schedule of cash payments April May june Beginning accounts payable 15,200 apirl (90200*65%;35%) 58630 31570 May (91500*65%;35%) 59475 32025 june (100,900*65%) 65585 total cash payments 73,830 91045 97610 4) balance in accounts payable (100,900*35%)= 35315

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