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 $165,000.

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 $1,150 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 $ 59,200 Accounts receivable 31,600 Inventory 47,500 Buildings and equipment, net of depreciation 119,000 Total assets $ 257,300 Liabilities and Stockholders’ Equity Accounts payable $ 76,400 Common stock 70,000 Retained earnings 110,900 Total liabilities and stockholders’ equity $ 257,300

Explanation / Answer

Solution:-

Cash Collection:-

(2) budgeted merchandise purchases for April, May, and June

COGS of july = 165000*60% = 99000

(3) expected cash disbursements for merchandise purchases for April, May, and June

  

Particulars April May June Cash Sale 75000 81000 93000 Credit Sale collected in same month (40*20%) = 8% 10000 10800 12400 Credit sale collected in following month 31600 40000 43200 Total cash collection 116600 131800 148600

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