Question

9. Required information

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:

Prepare a balance sheet as of September 30.

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	83,000
Accounts receivable		126,000
Inventory		69,750
Plant and equipment, net of depreciation		220,000
Total assets	$	498,750
Liabilities and Stockholders’ Equity
Accounts payable	$	81,000
Common stock		348,000
Retained earnings		69,750
Total liabilities and stockholders’ equity	$	498,750

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

1. Estimated sales for July, August, September, and October will be $310,000, $330,000, $320,000, and $340,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% 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 20% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% 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 $58,000. Each month $6,000 of this total amount is depreciation expense and the remaining $52,000 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.

Prepare a balance sheet as of September 30.

Answer 1

		Schedule of Expected Cash Collections
					July	August	September	Quarter
From Accounts receivable					126,000			126,000
From July sales		(310,000*45%;55%)			139500	170500		310000
From August sales		(330,000*45%;55%)				148500	181500	330000
From September sales		(320,000*45%)					144000	144000
Total cash collections					265,500	319000	325500	910,000
			Accounts receivable 320,000*55%=				176000
2-a)		Merchandise Purchase Budget
					July	August	September	Total
Budgeted cost of goods sold			(75% of sales)		232500	247500	240000	720000
Add:Desired ending merchandise inventory					49500	48000	51000	51000
total needs					282000	295500	291000	771000
less: Beginning merchandise inventory					69,750	49500	48000	69,750
Required purchased					212,250	246000	243000	701,250
2-b)		Schedule of Cash Disbursement for purchases
					July	August	September	Total
From Accounts payable					81,000			81,000
From July purchases					63675	148575		212250
From august purchases						73800	172200	246000
From September purchases							72900	72900
total cash disbursements					144,675	222375	245100	612,150
		Accounts payable		243000*70%=		170100
3)		Income Statement
	Sales						960000
	cost of goods sold						720000
	Gross profit						240000
	Selling and administrative expense				(58000*3)		174000
	net operating income						66000
	interest expense						0
	net income (loss)						66000
4)		Balance sheet
	Assets
	Cash						224,850
	Account receivable						176000
	inventory						51000
	Plant and Equipment,net						202000
	Total Assets						653850
	Liabilities and Stockholders Equity
	Accounts payable						170100
	Capital Stock						348,000
	Retained earnings						135750
	Total liabilities & Stockholder's Equity						653850