Colerain Corporation is a merchandising company that is preparing a budget for the third quarter of the calendar year. The company's balance sheet as ofJune 30 is shown below: COLERAIN CORPORATION Balance Sheet June 30 Assets Cash 5 87,000 Accounts receivable 133,000 Inventory 59,000 Plant and equipment, net of depreciation 270,000 Total assets $ 549,000 Liabilities and Shareholders' Equity Accounts payable 5 68,000 Common shares 370,000 Retained earnings 111,000 Total liabilities and shareholders' equity 5 549,000 Colerain's managers have made the following additional assumptions and estimates: 3. Estimated sales for July, August. September. and October will be $235,000. $255,000, $245,000, and $265,000, respectively. b. All sales are on credit and all credit sales are collected. Each month's credit sales are collected 25% in the month of sale and 75% in the month following the sale. All ofthe accounts receivable at June 30 will be collected in July. 6. Each month's ending inventory must equal 40% of the cost of next month's sales. The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All ofthe accounts payable at June 30 will be paid in July. d. Monthly selling and administrative expenses are always $72,000. Each month, $6.000 ofthis total amount is depreciation expense and the remaining $66,000 relates to expenses that are paid in the month they are incurred. e. 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 shares or repurchase its own shares during the quarter ended September 30. Required: 1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. From accounts receivable Sales on account: September Total cash collections 25. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Add: beginning inventory Add: desired ending inventory Less: beginning inventory Less: desired ending inventory 2b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30th. Schedule of Cash Disbursements for Purchases July August September Total From accounts payable Purchase on account: July August September Total cash disbursements3. Prepare an income statement for the quarter ended September 30. (Do not leave any empty spaces; input a 0 wherever it is required.)
