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 $81,800 54,200 43,600 245,000 424,600 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity 38,600 100,000 286,000 424,600 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 $12,900 4. Depreciation expense is $4,900 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 $84,800, expected cash disbursements for merchandise purchases of $44,700, and cash paid for selling and administrative expenses of $15,500

Explanation / Answer

1a) Cash collection 84,800 less:accounts receivable collected 54,200 Cash collected from july sale 30,600 30% is collected in the month of sale which is $30,600 hence 100%   = 30,600/30% 102000 Budgeted sales for July $102,000 1b) Cash payment 44,700 less:Accounts payable 38,600 Cash paid for the month of july 6,100 20% of merchandise is paid in the month of purchase hence 100%   = 6100/20% 30500 Budgeted merchandise purchase for july $30,500 1c) Budgeted cost of goods sold inventory,beginning 43,600 Add merchandise purchase for july 30,500 less inventory,ending -12,900 Budgeted cost of goods sold 61,200 Budgeted cost of goods sold for July $61,200 1d) Budgeted net operating income for July sales 102,000 less cost of goods sold 61,200 gross profit 40,800 less:Expenses Depreciation expense 4,900 Selling & administrative expense 15,500 20,400 Budgeted net operating income for July 20,400 Budgeted net operating income for july $20,400 2) Cash budget opening cash balance 81,800 Add:cash collection 84,800 total cash receipts 166,600 less :disbursements merchandise purchase 44,700 selling & administrative expense 15,500 total disbursements 60,200 cash end balance 106,400 Accounts receivable on july end 102000*70% 71400 Accounts payable on july end   30500*80% 24400     Wolfpack Balance Sheet Assets Cash 106,400 Account receivable 71400 inventory 12,900 buildings &equipment net of dep (245000-4900) 240100 total assets 430,800 liabilities & stockholder's equity Accounts payable 24400 common stock 100,000 Retained earnings (286000+20400) 306400 total liabilities & stockholders Equity 430800

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