Question

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Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation Balance Sheet June 30
Assets
Cash	$  73,000
Accounts receivable	125,000
Inventory	56,000
Plant and equipment, net of depreciation	221,000
Total assets	$ 475,000
Liabilities and Stockholders’ Equity
Accounts payable	$  82,000
Common stock	309,000
Retained earnings	84,000
Total liabilities and stockholders’ equity	$ 475,000

2.

value:
10.00 points

Required information

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

   

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

   

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

   

3. Prepare an income statement for the quarter ended September 30.

   

4. Prepare a balance sheet as of September 30.

    

Answer 1

Requirement 1:

Schedule of Expected Cash Collections
	Month
	July	August	September	Quarter
From accounts receivable	$125,000
From July sales	$112,000	$208,000
From August sales		$119,000	$221,000
From September sales			$115,500
Total cash collections	$237,000	$327,000	$336,500	$900,500

Calculations:

	Credit sales	% of collection	July	August	September
From July sales	$320,000	35%	$112,000
		65%		$208,000
From August sales	$340,000
		35%		$119,000
		65%			$221,000
From September sales	$330,000
		35%			$115,500

Requirement 2a:

Merchandise Purchase Budget
	July	August	September	Total
Budgeted cost of goods sold	$224,000	$238,000	$231,000
Required ending inventory	$59,500	$57,750	$61,250
Total needs	$283,500	$295,750	$292,250	$871,500
(Less): Beginning inventory	($56,000)	($59,500)	($57,750)	($173,250)
Required purchases	$227,500	$236,250	$234,500	$698,250

Calculations:

	July	August	September	October
Sales	$320,000	$340,000	$330,000	$350,000
Cost of goods sold (70%)	$224,000	$238,000	$231,000	$245,000
Required ending inventory (25% of Next months's COGS)	$59,500	$57,750	$61,250

Requirement 2b:

Schedule of Cash Disbursements for purchases
	July	August	September	Total
From accounts payable	$82,000
From July purchase	$91,000	$136,500
From August purchase		$94,500	$141,750
From September purchase			$93,800
Total cash disbursements	$173,000	$231,000	$235,550	$639,550

Calculations:

	Credit Purchases	% of disbursements	July	August	September
From July Purchases	$227,500	40%	$91,000
		60%		$136,500
From August Purchases	$236,250
		40%		$94,500
		60%			$141,750
From September Purchases	$234,500
		40%			$93,800

Requirement 3:

Beech Corporation
Income Statement
For the Quarter Ended September 30
Sales revenue A	$990,000
Expenses:
Cost of goods sold	$693,000
Selling administrative expenses (34,000 x 3)	$102,000
Depreciation expense ($6,000 x 3)	$18,000
Total expenses B	$813,000
Net income A-B	$177,000

Requirement 4:

Beech Corporation
Balance Sheet
September 30
Assets
Cash	$231,950
Accounts receivable (330,000 x 65%)	$214,500
Inventory	$61,250
Plant and equipment, net of depreciation (221,000-18,000 Dep.)	$203,000
Total assets	$710,700
Liabilities and Stockholder's Equity
Accounts payable (234,500 x 60%)	$140,700
Common stock	$309,000
Retained earnings (84,000+177,000)	$261,000
Total liabilities and stockholder's equity	$710,700

Calculations:

Cash
Beginning	73,000
Collections	$900,500
Disbursements	($639,550)
Selling and administration expenses	($102,000)
Ending	231,950