2 Wheeling Company is a merchandiser that provided a balance sheet as of Septemb

Question

2 Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below Cash Accounts receivable $ 59,000 90,000 32,400 Buildings and equipment, net of depreciation Total assets $395,400 Liabilities and Stockholders Equity Accounts payable Common stock $ 73,000 216,000 106.400 ferences Total The company is in the process of preparing a budget for October and has assembled the following data 1 Sales are budgeted at S 240.000 for October and S250.000 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 3 Alm cost 2 The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following 4 Selling and administrative expenses for October are budgeted at $78,000, exclusive of depreciation. These expenses will be paid October 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 in cash. Depreciation is budgeted at $2.000 for the month. 1. Using the inf a. The budgeted cash collections for October b. The budgeted m 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 or prepare the following andise s for October (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

Explanation / Answer

1A: Budgeted cash collection for October = 240,000*35% + (40% of 65% of 240,000) + 90,000= 236,400

1b: Budgeted merchandise purchased for October: Opening inventory = 32,400. COGS = 45% of 240,000 = 108,000. COGS of November = 45% of 250,000 = 112,500. Ending inventry for October = 30% of 112,500 = 33750.

Thus merchandise purchase for October = 33750+108000-32400 = 109,350

1c: Total purchase = 109,350. Thus budgeted cash disbursements = (30% of 109350) = $32,805. Please note that this is specific only to October purchases. (if total cash disbursements would have been asked for then September's accounts payable would have been added and the amount would have become 32805+73000 = 105,805)

1d: Net operating income = revenues - cogs - SG&A - depreciation = 240,000 - 108,000 - 78,000 - 2,000 = $52,000

1e:

2a:  Budgeted cash collection for October = 240,000*35% + (50% of 65% of 240,000) + 90,000= 252,000

2b: Budgeted merchandise purchase for October: Opening inventory = 32,400. COGS = 45% of 240,000 = 108,000. COGS of November = 45% of 250,000 = 112,500. Ending inventry for October = 10* of 112500 = 11,250

Thus merchandise purchased in October = 11250+108000-32400 = 86,850

2c: Budgeted cash disbursements for October purchase = 20% of 86850 = 17,370. (Total cash disbursements in October = 17370+73000 = 90370)

2d: revenues - cogs - SG&A - depreciation = 240,000 - 108,000 - 78,000 - 2,000 = 52,000

2e:

Assets Cash 111,595.00 Accounts receivable 93,600.00 Inventory 33,750.00 Building and equipment, net of depreciation 212,000.00 Total assets 450,945.00 Liabilities and stockholder's equity Accounts payable 76,545.00 Common stock 216,000.00 Retained earnings 158,400.00 Total liabilities and stockholder's equity 450,945.00

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