Question

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Deacon Company Balance Sheet March 31
Assets
Cash	$	55,400
Accounts receivable		41,200
Inventory		53,200
Buildings and equipment, net of depreciation		180,000
Total assets	$	329,800
Liabilities and Stockholders’ Equity
Accounts payable	$	143,500
Common stock		70,000
Retained earnings		116,300
Total liabilities and stockholders’ equity	$	329,800

Budgeted Income Statements
	April			May			June
Sales	$	144,000		$	154,000		$	174,000
Cost of goods sold		86,400			92,400			104,400
Gross margin		57,600			61,600			69,600
Selling and administrative expenses		20,300			21,800			24,800
Net operating income	$	37,300		$	39,800		$	44,800

Budgeting Assumptions:

1. 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

2. Budgeted sales for July are $184,000.

3. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.

4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

5. Depreciation expense is $1,750 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)

Answer 1

Soltions:

Н 1 2 3 4 5 Schedule of expected cash collection - Deacon company 6 April $41,200.00 Particulars Quarter May June Accounts Receivables from March $41,200.00 Cash sales (Sales 60%) 10 Cash received for April credit Sale 11 Cash received for May credit Sale 12 Cash received for June credit Sale $86,400.00 $92,400.00 $104,400.00 $283,200.00 $11,520.00 $46,080.00 $57,600.00 $12,320.00 $49,280.00 $61,600.00 $13,920.00 $13,920.00 13 $139,120.00 $457,520.00 14 Budgeted Cash Collection $150,800.00 $167,600.00 15 16 17 Merchandise Purchase Budget - Deacon Company 18 Total 19 Particulars April $86,400.00 May June 20 Cost of Sales (60% of Sales) Add: Desired ending inventory $92,400.00 $104,400.00 $283,200.00 21 ($10000+50% of COGS of next month) 22 Less: Opening Inventory $56,200.00 $62,200.00 $65,200.00 $65,200.00 $53,200.00 $56,200.00 $62,200.00 $53,200.00 23 24 Budgeted purchases (in dollars) $98,400.00 $89,400.00 $107,400.00 $295,200.00 25 26 27 Schedule of expected cash disbursement for merchandise purchases - Deacon Company 28 Particulars April $143,500.00 Quarter May June 29 Payables from March 30 July Purchases 31 August Purchases 32 September Purchases $143,500.00 $8,940.00 $80,460.00 $89,400.00 $9,840.00 $88,560.00 $98,400.00 $10,740.00 $10,740.00 33 $152,440.00 $342,040.00 34 Total payments in month $99,300.00 $90,300.00 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 |(6 Sheet181 (30) Sh Sheet578 Sheet31 Sheet13 II

R I1 12 13 14 15 16 17 Balance Sheet- Deacon Company 18 19 31-June Particulars 20 Amount 21 Assets: $109,230.00 Cash ($55400 $457520 - $342040 $20300-21800-24800+1750*3) Accounts receivables ($174,000*40%*80 % ) Inventory Buildings and equipment net of depreciation ($180,000 $1750*3) Total Assets 22 $55,680.00 23 $65,200.00 24 $174,750.00 25 $404,860.00 26 27 Liabilities and stockhol der's Equity: Accounts payable ($107400*90%) 28 $96,660.00 $70,000.00 $238,200.00 $404,860.00 29 30 Common Stock Retained Earnings ($116300 + $37300+39800+44800) Total liabilities and stockholders equity 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 9) Sheet181 (30) Sh Sheet578 Sheet31 Sheet13 (6 II