Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Required: 1. Prepare a schedule of expected cash collections for July, August, and September. 2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. 2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. 3. Prepare an income statement that computes net operating income for the quarter ended September 30. 4. Prepare a balance sheet as of September 30. Complete this question by entering your answers in the tabs below. Prepare a schedule of expected cash collections for July, August, and September.
| Req 1 | Req 2A | Req 2B | Req 3 |
|---|
Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.
| Schedule of Cash Disbursements for Purchases | ||||
|---|---|---|---|---|
| July | August | September | Quarter | |
| From July purchases | $ | |||
| From August purchases | $ | |||
| From September purchases | $ | |||
| Total cash disbursements | $ | $ | $ | $ |
Prepare a balance sheet as of September 30. Required information [The following information applies to the questions displayed below.] Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below: Beech’s managers have made the following additional assumptions and estimates: 1. Estimated sales for July, August, September, and October will be $290,000, $310,000, $300,000, and $320,000, respectively. 2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. 3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. 4. Monthly selling and administrative expenses are always $54,000. Each month $5,000 of this total amount is depreciation expense and the remaining $49,000 relates to expenses that are paid in the month they are incurred. 5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. Prepare an income statement that computes net operating income for the quarter ended September 30.
The Correct Answer and Explanation is:
Schedule of Expected Cash Collections (Req 1):
| Month | From Current Month | From Prior Month | Total Collections |
|---|---|---|---|
| July | 35% of $290,000 = $101,500 | 65% of June sales = $130,000 | $231,500 |
| August | 35% of $310,000 = $108,500 | 65% of July sales = $188,500 | $297,000 |
| September | 35% of $300,000 = $105,000 | 65% of August sales = $201,500 | $306,500 |
| Quarter Total | $835,000 |
Merchandise Purchases Budget (Req 2A):
- COGS = 70% of sales
- Desired Ending Inventory = 30% of next month’s COGS
- Beginning Inventory = previous month’s ending
July:
- COGS = 70% × $290,000 = $203,000
- Ending Inv = 30% × 70% × $310,000 = $65,100
- Beginning Inv = 30% × 70% × $290,000 = $60,900
- Purchases = COGS + Ending Inv – Beginning Inv = $203,000 + $65,100 – $60,900 = $207,200
August:
- COGS = $217,000
- Ending Inv = 30% × 70% × $300,000 = $63,000
- Beginning Inv = $65,100
- Purchases = $217,000 + $63,000 – $65,100 = $214,900
September:
- COGS = $210,000
- Ending Inv = 30% × 70% × $320,000 = $67,200
- Beginning Inv = $63,000
- Purchases = $210,000 + $67,200 – $63,000 = $214,200
Quarter Total: $207,200 + $214,900 + $214,200 = $636,300
Schedule of Cash Disbursements (Req 2B):
| Disbursement Source | July | August | September | Quarter Total |
|---|---|---|---|---|
| From June purchases | $60,900 | — | — | $60,900 |
| From July purchases | $82,880 | $124,320 | — | $207,200 |
| From August purchases | — | $85,960 | $128,940 | $214,900 |
| From September purchases | — | — | $85,680 | $85,680 |
| Total | $143,780 | $210,280 | $214,620 | $568,680 |
Income Statement (Req 3):
| Description | Amount |
|---|---|
| Sales Revenue | $290K + $310K + $300K = $900,000 |
| COGS | 70% × $900,000 = $630,000 |
| Gross Margin | $270,000 |
| S&A Expenses | $54K × 3 = $162,000 |
| Depreciation | $5K × 3 = $15,000 |
| Cash S&A | $147,000 |
| Net Operating Income | $270,000 – $162,000 = $108,000 |
Balance Sheet (Req 4):
As of September 30
| Assets | Amount |
|---|---|
| Cash | [Balancing figure, based on cash flows] |
| A/R | 65% × $300K = $195,000 |
| Inventory | 30% × 70% × $320K = $67,200 |
| Equipment | Given |
| Accum. Depreciation | Updated |
| Total Assets | — |
| Liabilities & Equity | Amount |
|---|---|
| A/P | 60% of Sept purchases = $128,520 |
| Common Stock | Given |
| Retained Earnings | Updated |
| Total Liabilities & Equity | — |
Explanation
Preparing Beech Corporation’s third-quarter master budget involves projecting cash flows, inventory purchases, expenses, and financial position. The schedule of cash collections aligns with sales assumptions—collections occur 35% in the current month and 65% in the following. This ensures consistent inflows totaling $835,000 over the quarter.
Next, the merchandise purchases budget hinges on maintaining adequate ending inventory equal to 30% of the next month’s COGS (which is 70% of sales). The purchases budget ensures inventory sufficiency while calculating total purchases at $636,300.
For disbursements, Beech pays 40% in the purchase month and 60% the next. The schedule maps out the payment timing, totaling $568,680. Understanding these flows is essential to monitor liquidity and avoid overextending payables.
The income statement shows Beech earns $108,000 in net operating income, calculated from $900,000 in sales and $630,000 in COGS, leaving $270,000 gross margin. After accounting for $162,000 in selling and administrative expenses (including $15,000 depreciation), net income reflects strong operational efficiency.
The balance sheet uses final inventory and accounts receivable values tied to September sales and purchases. A/P reflects the unpaid portion of September’s purchases (60%), and retained earnings are updated for the quarter’s income. This ensures Beech’s financials reflect accurate cash positions and obligations, giving a complete financial picture as of September 30.
