Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available:

                                      Deacon Company

                                          Balance Sheet

                                              March 31

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000

Buildings and equipment, net of depreciation . . . . . . . . . . . . . . $100,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,000

Liabilities and Stockholders' Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,300

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $179,700

Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . $ 231,000

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 $140,000.
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.
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 $1,000 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 30.

Transcribed Image Text:

Budgeted Income Statements April May June Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $100,000 $110,000 $130,000 78,000 52,000 16,500 19.500 . 25,000 27,500 32,500 60,000 40,000 15,000 66,000 44,000