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:

Estimated sales for July, August, September, and October will be $410,000, $430,000, $420,000, and $440,000, 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 70% 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 $58,000. Each month $8,000 of this total amount is depreciation expense and the remaining $50,000 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 using an absorption income statement format.

Prepare a balance sheet as of September 30.

Beech Corporation
Balance Sheet
June 30 Assets   Cash $   76,000   Accounts receivable 137,000   Inventory 86,100   Plant and equipment, net of depreciation 230,000   Total assets $ 529,100 Liabilities and Stockholders’ Equity   Accounts payable $   91,000   Common stock 312,000   Retained earnings 126,100   Total liabilities and stockholders’ equity $ 529,100

Explanation / Answer

1. Expected cash collections : July Aug Sept Quarter from AR 137000 137000 from July sales 184500 225500 410000 from Aug sales 193500 236500 430000 from Sep sales 189000 189000 Total cash collections 321500 419000 425500 1166000 2a) Merchandise purchases budget: July Aug Sept Quarter Budgeted COGS 70% 287000 301000 294000 882000 ADD: Closing invent 20% of next COGS 60200 58800 61600 61600 Total needed 347200 359800 355600 943600 Less: Opening invent 86100 60200 58800 86100 Required purchases 261100 299600 296800 857500 2b) Cash disbursements for purchases: July Aug Sept Quarter From AP 91000 91000 from july purcha (30/70) 78330 182770 261100 from aug purcha 89880 209720 299600 from sep purcha 89040 89040 Total cash disbursements 169330 272650 298760 740740 3) Income Statement : Amount $ Sales 1260000 Less: COGS 882000 GP 378000 Less: expenses: sell & admin 174000 Net Income 204000 4) Balance sheet: Assets: Amount $ cash 351260 76000+1166000-740740-150000=351260 AR 231000 Inventory 61600 Plant & Equip net of dep 206000 Total assets: 849860 Liabilities: Amount $ AP 207760 CS 312000 RE (126100 +204000) 330100 Total liabilities: 849860

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