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 $231,000.

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 $1,400 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 $ 68,400 Accounts receivable 35,600 Inventory 67,300 Buildings and equipment, net of depreciation 179,000 Total assets $ 350,300 Liabilities and Stockholders’ Equity Accounts payable $ 155,600 Common stock 70,000 Retained earnings 124,700 Total liabilities and stockholders’ equity $ 350,300

Explanation / Answer

1. Expected cash collections for April, May, and June

2. Budgeted merchandise purchases for April, May, and June

3. Expected cash disbursements for merchandise purchases for April, May, and June.

4. Budgeted balance sheet at June 30th

176220

Transaction April May June A Cash Collection Against Sale of Previous Month (80% x (40% of Sale)) 35,600 61,120 64,320 B Total Sales        1,91,000        2,01,000        2,21,000 C Cash Sales - 60% of Total Sales        1,14,600        1,20,600        1,32,600 D Credit Sales - 40% of Total Sales 76,400 80,400 88,400 E Collection against credit sale 20% 15,280 16,080 17,680 Expected cash collections (A + C + E)        1,65,480        1,97,800        2,14,600

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