Reference no: EM132669679
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 $65,200
Accounts receivable 38,800
Inventory 43,300
Buildings and equipment, net of depreciation 125,000
Total assets $272,300
Liabilities and Stockholders' Equity Accounts payable $66,200
Common stock 70,000
Retained earnings 136,100
Total liabilities and stockholders' equity $272,300
Budgeted Income Statements
April May June
Sales $111,000 $121,000 $141,000
Cost of goods sold 66,600 72,600 84,600
Gross margin 44,400 48,400 56,400
Selling and administrative expenses 23,300 24,800 27,800
Net operating income $21,100 $23,600 $28,600
Budgeting Assumptions:
a. 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.
b. Budgeted sales for July are $151,000.
c. 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.
d. Each month's ending merchandise inventory should equal $10,000 plus 50% of the next month's cost of goods sold.
e. Depreciation expense is $1,600 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.)