Wolfpack Company is a merchandising company that is preparing a budget for the m

Question

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information Wolfpack Company Balance Sheet June 30 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets $ 83,600 69,600 44,200 158,000 $355,400 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 37,400 100,000 218.000 $355,400 Budgeting Assumptions 1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July 2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase 3. The budgeted inventory balance at July 31 is $36,600 4. Depreciation expense is $3,160 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred 5. The company's cash budget for July shows expected cash collections of $98,400, expected cash disbursements for merchandise purchases of $47,400, and cash paid for selling and administrative expenses of $16,040

Explanation / Answer

1)Cash collection from july sales : Total cash collection -accounts receivable at beginning of july 1

            98400 -69600

                28800

Cash collection from july sales represent 30% as 30% is collected in month of sales

Budgeted sales for july = cash collection from july sales / %

               = 28800 /.30

              = $ 96000

2)cash disbursement for july : Total payment for purchase-accounts payable

               = 47400-37400

                    = 10000

% of payment made for purchase made in july 20%

Purchase : 10000/ .20 = $ 50000

C)cost of goods sold : Beginning inventory +purchase- ending inventory

         = 44200+50000-36600

            = 57600

d)net operating income = Sales -cost of goods sold -depreciation -cash selling and administractive expense

          = 96000-57600-3160-16040

           = 19200

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