Reference no: EM132520237

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:

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 $151,000.
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 $1,600 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

Question 1. Calculate the expected cash collections for April, May, and June.

Question 2. Calculate the budgeted merchandise purchases for April, May, and June.

Question 3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

Question 4. Make 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.)