Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available: Green Sport Balance Sheet March 31 Assets Cash $ 55,000 Accounts receivable 36,000 Inventory 40,000 Buildings and equipment, net of depreciation 100,000 Total assets $231,000 Liabilities and Stockholders’ Equity Accounts payable $ 51,300 Retained earnings 179,700 Total liabilities and stockholders’ equity $231,000 Budgeted Income Statements April May June Sales $100,000 110,000 130,000 Cost of goods sold 60,000 66,000 78,000 Gross margin 40,000 44,000 52,000 Selling and administrative expenses 15,000 16,500 19,500 Net operating income $ 25,000 $ 27,500 $ 32,500 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 $140,000. 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. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold. Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred. Required: Calculate the expected cash collections for April, May, and June. Calculate the budgeted merchandise purchases for April, May, and June. Calculate the expected cash disbursements for merchandise purchases for April, May, and June. 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.)

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available: Green Sport Balance Sheet March 31 Assets Cash $ 55,000 Accounts receivable 36,000 Inventory 40,000 Buildings and equipment, net of depreciation 100,000 Total assets $231,000 Liabilities and Stockholders’ Equity Accounts payable $ 51,300 Retained earnings 179,700 Total liabilities and stockholders’ equity $231,000 Budgeted Income Statements April May June Sales $100,000 110,000 130,000 Cost of goods sold 60,000 66,000 78,000 Gross margin 40,000 44,000 52,000 Selling and administrative expenses 15,000 16,500 19,500 Net operating income $ 25,000 $ 27,500 $ 32,500 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 $140,000. 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. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold. Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred. Required: Calculate the expected cash collections for April, May, and June. Calculate the budgeted merchandise purchases for April, May, and June. Calculate the expected cash disbursements for merchandise purchases for April, May, and June. 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.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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

Green Sport Balance Sheet March 31

Assets
Cash	$ 55,000
Accounts receivable	36,000
Inventory	40,000
Buildings and equipment, net of depreciation	100,000
Total assets	$231,000
Liabilities and Stockholders’ Equity
Accounts payable	$ 51,300
Retained earnings	179,700
Total liabilities and stockholders’ equity	$231,000

Budgeted Income Statements

	April	May	June
Sales	$100,000	110,000	130,000
Cost of goods sold	60,000	66,000	78,000
Gross margin	40,000	44,000	52,000
Selling and administrative expenses	15,000	16,500	19,500
Net operating income	$ 25,000	$ 27,500	$ 32,500

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 $140,000.
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.
Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

Calculate the expected cash collections for April, May, and June.
Calculate the budgeted merchandise purchases for April, May, and June.
Calculate the expected cash disbursements for merchandise purchases for April, May, and June.
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.)

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