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 CompanyBalance SheetMarch 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 Common stock   70,000 Retained earnings   109,700 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. 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 $1,000 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.)

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 $ 55,000
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
Common stock   70,000
Retained earnings   109,700
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:

 

  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 $140,000.

  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 $1,000 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.)

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