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
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      70,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     109,700
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . $ 231,000

Budgeting Assumptions:

1. Sixty percent 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 .. $100,000 $110,000 $130,000 Cost of goods sold 60,000 66,000 78,000 Gross margin ... Selling and administrative expenses 40,000 44,000 52,000 15,000 $ 25,000 $ 27,500 16,500 19,500 Net operating income. $ 32,500