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 of June 30 is shown below: COLERAIN CORPORATION Balance Sheet June 30 Assets Cash Accounts receivable Inventory Plant and equipment, net of depreciation $ 97,000 143,000 69,000 370,000 Total assets $ 679,000 $ Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings 78,000 470,000 131,000 Total liabilities and shareholders' equity $ 679,000 Colerain's managers have made the following additional assumptions and estimates: a. Estimated sales for July, August, September, and October will be $220,000, $240,000, $230,000, and $250,000, respectively. b. All sales are on credit and all credit sales are collected. Each month's credit sales are collected 20% in the month of sale and 80% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. c. Each month's ending inventory must equal 35% of the cost of next month's sales. The cost of goods sold is 60% 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 of the accounts payable at June 30 will be paid in July. d. Monthly selling and administrative expenses are always $82,000. Each month, $6,000 of this total amount is depreciation expense and the remaining $76,000 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. 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. Schedule of Expected Cash Collections July August September Quarter From accounts receivable $ 143,000 $ 143,000 Sales on account: July 44,000 176,000 220,000 August 48,000 $ 192,000 240,000 September 46,000 46,000 Total cash collections $ 187,000 $ 224,000 $ 238,000 $ 649,000 2a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Merchandise purchases budget July August September Quarter Budgeted cost of goods sold $ 132,000 $ 144,000 $ 138,000 $ 414,000 Add: desired ending inventory 50,400 48,300 52,500 146,700 Total needs 182,400 192,300 190,500 560,700 Less: beginning inventory 69,000 50,400 48,300 Required purchases $ 113,400 $ 141,900 $ 142,200 $ 560,700 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. Total 78,000 Schedule of Cash Disbursements for Purchases July August September From accounts payable $ 78,000 $ Purchase on account: July 56.700 $ 56.700 August 70.950 $ 70,950 September 71,100 Total cash disbursements $ 134,700 $ 127,650 $ 142,050 $ 113,400 141,900 71,100 404,400 3. Prepare an income statement for the quarter ended September 30. (Do not leave any empty spaces; input a 0 wherever it is required.) COLERAIN CORPORATION Income Statement For the Quarter Ended September 30 $ 690,000 Sales 414,000 Cost of goods sold Gross margin Selling and administrative expenses Operating income Net income 276,000 246,000 30,000 30,000 4. Prepare a balance sheet as of September 30. COLERAIN CORPORATION Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net 0 Total assets Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings Total liabilities and shareholders' equity $ 0
