Problem 8-27 Cash Collections; Cash Disbursements; Budgeted Balance Sheet [LO8-2, LO8-3, LO8-4, LO8-10]Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available Deacon CompanyBalance SheetMarch 31AssetsCash$55,400Accounts receivable 41,200Inventory 53,200Buildings and equipment, net of depreciation 180,000Total assets$329,800Liabilities and Stockholders’ EquityAccounts payable$143,500Common stock 70,000Retained earnings 116,300Total liabilities and stockholders’ equity$329,800 Budgeted Income Statements April May JuneSales$144,000 $154,000 $174,000Cost of goods sold 86,400 92,400 104,400 Gross margin 57,600 61,600 69,600Selling and administrative expenses 20,300 21,800 24,800Net operating income$37,300 $39,800 $44,800 Budgeting Assumptions: 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.Budgeted sales for July are $184,000.10% 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.Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.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 30. (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 30 balance sheet.)

Budget is termed as surplus if the expenses are lesser than the income. It is balanced if income meets the expenditure and it is a deficit budget if expenses are higher than the income. So, we can say that budgets are an integral part of running any company efficiently. Cash budget-cash budget is a summary statement of firms expected cash inflow and outflow over a projected time period.a) Calculation of the expected cash collection Particulars April May June Quarter Accounts receivables $41,200 $0 $0 $41,200 Cash sales (Sales x 60%) $86,400 $92,400 $104,400 $283,200 Cash received from April credit sale $11,520 $46,080 $0 $57,600 Cash received from May credit sale $12,320 $49,280 $61,600 Cash received from June credit sale $13,920 $13,920 Budgeted Cash Collection $139,120 $150,800 $167,600 $457,520 b) Calculation of the budgeted merchandise purchases Particulars April May June Quarter Cost of sales (60% of sales) $86,400 $92,400 $104,400 $283,200 Add: Desired ending Inventory $56,200 $62,200 $65,200 $65,200 ($10,000+50% of cost of goods sold of next month) Less: Operating Inventory $53,200 $56,200 $62,200 $53,200 Budgeted Purchases $89,400 $98,400 $107,400 $295,200 c) Calculation of the expected cash disbursements for merchandise purchases Particulars April May June Quarter Payables from March $143,500 $143,500 July Purchases $8,940 $80,460 $89,400 August purchases $9,840 $88,560 $98,400 September Purchases $10,740 $10,740 Total payment in month $152,440 $90,300 $99,300 $342,040 d) Balance Sheet Particulars Amount Assets Cash ($55,400 + $457,520 - $342,040 - $20,300 -21,800 - 24,800 + 1750 x 3) $109,230 Accounts receivables($174,000 x 40% x 80%) $55,680 Inventory $65,200 Buildings and equipment net of depreciation ($180,000 -$1750 x3) $174,750 Total Assets $404,860 Liabilities and stockholders' equity Accounts payable ($107,400 x 90%) $96,660 Common stock $70,000 Retained Earnings ($116,300 + $37,300 + 39,800 +$44,800) $238,200 Total liabilities and stockholders equity $404,860

Answered: Deacon Company is a merchandising…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Problem 8-27 Cash Collections; Cash Disbursements; Budgeted Balance Sheet [LO8-2, LO8-3, LO8-4, LO8-10]

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. 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:

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.
Budgeted sales for July are $184,000.
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.
Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
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 30. (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 30 balance sheet.)

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Cash and cash equivalents

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.