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	$	79,200
Accounts receivable		68,600
Inventory		40,200
Buildings and equipment, net of depreciation		213,000
Total assets	$	401,000
Liabilities and Stockholders’ Equity
Accounts payable	$	56,000
Common stock		100,000
Retained earnings		245,000
Total liabilities and stockholders’ equity	$	401,000

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. The accounts payable at June 30 will be paid in July.
3. The budgeted inventory balance at July 31 is $25,700.
4. Depreciation expense is $4,260 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 $106,100, expected cash disbursements for merchandise purchases of $68,100, and cash paid for selling and administrative expenses of $20,740.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

Answer 1

SOLUTION

1A. Budgeted sales-

Particulars	Amount ($)
Expected cash collection in July	106,100
Less: June's Accounts receivable	(68,600)
Cash collection of July Sales	37,500
30% of July Total Sales	37,500
Total Sales of July month (37,500/30%)	125,000

1B. Budgeted merchandise purchases

Particulars	Amount ($)
Expected cash disbursement in July for Merchandise	68,100
Less: June's Accounts payable	(56,000)
Cash disbursement of July Merchandise purchases	12,100
20% of July Total Merchandise purchases	12,100
Total Merchandise purchases of July month (12,100/20%)	60,500

1C. Budgeted Cost of goods sold = Inventory used to make July Sales.

= Opening balance of Inventory + Inventory Purchased in July - Closing balance of Inventory on July 31

= 40,200 + 60,500 - 25,700 = 75,000

1D. Budgeted net operating income

Particulars	Amount ($)
Sales	125,000
Less: Cost of goods sold	75,000
Gross Profit	50,000
Less: Expenses -
Selling and Administrative expense	20,740
Depreciation	4,260
Net Operating Income	25,000

2. Budgeted balance sheet

	Amount ($)
Assets
Cash (79,200+106,100-68,100-20,740)	96,460
Accounts receivable (125,000*70%)	87,500
Inventory	25,700
Building & Equipment (213,000-4,260)	208,740
Total assets	418,400
Liabilities and Shareholder's Equity
Accounts payable (60,500*80%)	48,400
Common stock	100,000
Retained earnings (245,000+25,000)	270,000
Total liabilities and Shareholder's Equity	418,400