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
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 |
| 41,200 | ||
| Inventory | 53,200 | |
| Buildings and equipment, net of |
180,000 | |
| Total assets | $ | 329,800 |
| Liabilities and |
||
| Accounts payable | $ | 143,500 |
| Common stock | 70,000 | |
| 116,300 | ||
| Total liabilities and stockholders’ equity | $ | 329,800 |
| 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:
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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.
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Budgeted sales for July are $184,000.
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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.
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Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
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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.)
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