Reference no: EM132479280

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$73,000

Accounts receivable 44,400

Inventory 61,600

Buildings and equipment, net of depreciation 183,000

Total assets$362,000

Liabilities and Stockholders' Equity

Accounts payable$153,500

Common stock 70,000

Retained earnings 138,500

Total liabilities and stockholders' equity $362,000

Budgeted Income Statements    April                   May                          June

Sales                                       $172,000          $182,000             $202,000

Cost of goods sold                     103,200                109,200             121,200

Gross margin                               68,800               72,800                 80,800

Selling and administrative expenses  21,600                23,100                 26,100

Net operating income                   $47,200                $49,700              $54,700

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 $212,000.
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 $1,950 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. 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.)