Wheeling company is a merchandiser that provided a balance sheet as of september 30 as shown below:

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               =   $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      = $126,000

Ending Inventory: 30% of 45% $290,000  =   $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         =  $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.            (80,000 )

Less Depreciation on Equip.    (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  

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         =          $98,000

Cash Collection 50% of 65% $280,000 =  $91,000

September Receivables                  =          $98,000

Total                                                            $287,000

b.The budgeted merchandise purchases for October:

Cost of Goods Sold: 45% of $280,000      = $126,000

Ending Inventory: 10% of 45% $290,000   =   $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 =  $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  

e. A budgeted balance sheet at October 31:

Cash                                      $111,450

Accounts Receivable                91,000

Inventory                                  13,050

Building and Equipment        310,000  

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

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