Weller Industrial Gas Corporation supplies acetylene and other compressed gases

Question

Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

Ignore taxes.

Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January. Collections are expected to be 85% in the month of sale and 15% in the month following the sale. The cost of goods sold is 60% of sales. The company desires an ending merchandise inventory equal to 80% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,200. Monthly depreciation is $21,000.

Ignore taxes.

Balance Sheet October 31 Assets Cash $22,000 Accounts receivable 83,000 Merchandise inventory 158,400 Property, plant and equipment (net of $594,000 accumulated depreciation) 1,004,000 Total assets $1,267,400 Liabilities and Stockholders' Equity Accounts payable $196,000 Common stock 620,000 Retained earnings 451,400 Total liabilities and stockholders' equity $1,267,400 Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December. c. Prepare Cash Budgets for November and December.

Explanation / Answer

a.Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.  

Cost of Goods Sold (60% of sales.)

c. Prepare Cash Budgets for November and December.

November December Sales 330000 300000 Expected Cash Collections Accounts Receivables (Given in the Question) 83000 November (85% in the month of sale) 280500 255000 (330000*85%) (300000*85%) December (15% in the month following the sale) 49500 45000 (330000*15%) (300000*15%) Total Expected Cash Collections 413000 300000

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