Deacon Company is a merchandising company that is preparing a budget for the thr

Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Budgeting Assumptions:

60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

Budgeted sales for July are $145,000.

10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase.

Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

Depreciation expense is $1,500 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Deacon Company
Balance Sheet
March 31 Assets Cash $ 62,600 Accounts receivable 37,200 Inventory 41,500 Buildings and equipment, net of depreciation 174,000 Total assets $ 315,300 Liabilities and Stockholders’ Equity Accounts payable $ 113,100 Common stock 70,000 Retained earnings 132,200 Total liabilities and stockholders’ equity $ 315,300

Explanation / Answer

1.

2.

% of COGS of Sales = 63000/105000 = 60%

COGS for July = 145,000 * 60% = 87000

3.

4. Calculation of closing cash Balance

Balance Sheet:

April May June Credit Sales
(40% of Sales) 42000 46000 54000 20% of the Credit Sales 8400 9200 10800 80% of the credit Sales 37200 33600 36800 Cash Sales(60% of Sales) 63000 69000 81000 Expected Cash Collections 108600 111800 128600

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.