Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:
Cash $69,800, Accounts Receivable 98,000, Inventory 37,800, Building and Equipment, net of depreciation 310,000 Total Assets 515,600. Accounts payable $145,100, Common Stock 216,000, and Retained Earnings 154,500, Total Liabilities and Equity 515,600
The company is in the process of preparing a budget for October and has assembled the following data:
Sales are budgeted at $280,000 for October and $290,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.
The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.
All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.
Selling and administrative expenses for October are budgeted at$80,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,100 for the month.
Required:
1. Using the information provided, calculate or prepare the following:
a. The budgeted cash collections for October.
b. The budgeted merchandise purchases for October.
c. The budgeted cash disbursements for merchandise purchases for October.
d. The budgeted net operating income for October.
e. A budgeted balance sheet at October 31.
Solution:
1)
a.The budgeted cash collections for October:
Cash Sales 35% of $280,000 Â Â Â Â Â Â Â = Â $98,000
Cash Collection 40% of 65% $280,000 = $72,800
September Receivables             =  $98,000
Total                              $268,800
b.The budgeted merchandise purchases for October:
Cost of Goods Sold: 45% of $280,000 Â Â Â = $126,000
Ending Inventory: 30% of 45% $290,000 Â = Â $39,150
Total Cost of Goods Available for sale    =  $165,150
Less Beginning Inventory               =  $37,800
Purchases for the month               = $127,350
c.Merchandise Cash Disbursements for October:
October: 30% of $127,350 Â Â Â Â = Â $38,205
September Accounts Payable   = $145,100
Total                       = $183,305
d.The budgeted net operating income for October.
Sales                   $280,000
Cost of Sales              126,000
Gross profit               154,000
Less Selling & Admin. Â Â Â Â Â Â (80,000
)
Less Depreciation on Equip. Â Â (3,100
)
Net Income                70,900
e. A budgeted balance sheet at October 31.
Cash                    $75,295
Accounts Receivable       109,200
Inventory                 39,150
Building and Equipment    310,000 Â
Total Assets            $533,645
Accounts payable          $89,145
Common Stock            216,000
Retained Earnings         225,400
Depreciation                3,100
Total Liabilities & Equity   $533,645
(2) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:
a.The budgeted cash collections for October:
Cash Sales 35% of $280,000 Â Â Â Â = Â Â Â Â Â $98,000
Cash Collection 50% of 65% $280,000 = Â $91,000
September Receivables          =      $98,000
Total                               $287,000
b.The budgeted merchandise purchases for October:
Cost of Goods Sold: 45% of $280,000 Â Â Â = $126,000
Ending Inventory: 10% of 45% $290,000 Â = Â $13,050
Total Cost of Goods Available for sale    = $139,050
Less Beginning Inventory              =  $37,800
Purchases for the month               =  $101,250
c. The budgeted cash disbursements for merchandise purchases for October:
Cash October: 20% of $101,250 = Â $20,250
September Accounts Payable   = $145,100
Total                        = $165,350
d.The budgeted net operating income for October:
Sales                  $280,000
Cost of Sales            126,000
Gross profit             154,000
Less Selling & Admin      (80,000
)
Less Depreciation         (3,100
)
Net Income              70,900 Â
e. A budgeted balance sheet at October 31:
Cash                    $111,450
Accounts Receivable         91,000
Inventory                  13,050
Building and Equipment     310,000 Â
Total Assets             $525,500
Accounts payable         $81,000
Common Stock           216,000
Retained Earnings         225,400
Depreciation                3,100
Total Liabilities & Equity   $525,500
Explanation:
1.Cash Budget:
Beginning Balance $69,800
Cash Collections  $268,800
Cash Disbursement: $263,305
 Merchandise   $183,305
 Selling & Admin $80,000
Ending Balance $75,295
2.Accounts Receivable = 60% of 65% of $280,000 = $109,200
3.Accounts Payable = 70% of $127,350 = $89,145
4.Retained Earnings = $154,500 + 70,900 = $225,400
5.Cash Budget:
Beginning Balance $69,800
Cash Collections  $287,000
Cash Disbursement: $245,350
 Merchandise   $165,350
 Selling & Admin $80,000
Ending Balance $111,450
6.Accounts Receivable = 50% of 65% of $280,000 = $91,000
7.Accounts Payable = 80% of $101,250 = $81,000
8.Retained Earnings = $154,500 + 70,900 = $225,400
