Question

Following information relates to Acco Co. Beginning cash balance on July 1: $40,000. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,376,000; June (actual), $960,000; and July (budgeted), $1,120,000. Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $344,000; and July (budgeted), $600,000. Budgeted cash payments for salaries in July: $168,800. Budgeted depreciation expense for July: $9,600. Other cash expenses budgeted for July: $120,000. Accrued income taxes due in July: $80,000. Bank loan interest paid in July: $5,280. Additional Information: Cost of goods sold is 44% of sales. Inventory at the end of June is $64,000 and at the end of July is $171,200. Salaries payable on June 30 are $40,000 and are expected to be $32,000 on July 31. The equipment account balance is $1,280,000 on July 31. On June 30, the accumulated depreciation on equipment is $224,000. The $5,280 cash payment of interest represents the 1% monthly expense on a bank loan of $528,000. Income taxes payable on July 31 are $116,032, and the income tax rate is 35%. The only other balance sheet accounts are: Common Stock, with a balance of $464,000 on June 30; and Retained Earnings, with a balance of $857,600 on June 30. Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

Answer 1

Budgeted income statement for the month of July and a budgeted balance sheet for July 31 is as prepared below:

Acco Co.
Budgeted Income Statement
For the month ended July 31
Particulars	Amount ($)	Amount ($)
Sales		1,120,000
Less: Cost of goods sold (44% of sales)		492,800
Gross Profit		627,200
Less: expenses
Salaries	160,800
Other Expenses	120,000
Depreciation	9,600
Interest Expense	5,280
		295,680
Income before tax		331,520
Less: Income tax		116,032
Net Income		215,488
Acco Co.
Budgeted balance Sheet
Jul-31
Assets
Cash	259,520
Accounts Receivable	976,000
Inventory	171,200
Equipment	1,280,000
Less: accumulated dep (224,000+9,600)	-233,600
Total assets	2,453,120
Liabilities and Stockholders' Equity
Accounts Payable purchases	240,000
Salaries payable	32,000
Income tax payable	116,032
Bank Loan	528,000
Common Stock	464,000
Retained earnings (857,600+215,488)	1,073,088
Total liabilities and stockholders' equity	2,453,120

Working:

Acco Co.
Schedule of expected Cash collections
Particulars	July
Beginning Accounts Receivable
May sales (1,376,000*.2)	275,200
June Sales (960,000*.5)	480,000
July sales (1,120,000*.3)	336,000
Total collections	1,091,200
Account receivable for June Sale	192000
Account receivable for July Sale	784000
Acco Co
Schedule of expected Cash payments
Particulars	July
Beginning Accounts Payable (a)	$137,600
July purchases (600,000*.6)	$360,000
Total payments (a+b+c+d)	$497,600
Acco Co.
Cash Budget
Particulars	July
Beginning Cash balance	40,000
Add: Collection from customers	$1,091,200
cash available for use	$1,131,200
Less: cash Disbursements
Merchandise purchase	$497,600
Salaries	168,800
Other Expenses	120,000
Interest Expense	5,280
Income tax	80,000
Total disbursement	871,680
Cash surplus/Deficit	259,520
Net cash from Financing	0
Budgeted ending cash balance	259,520