Colerain Corporation is a merchandising company that is preparing a budget for the third quarter of the calendar year. The companys balance sheet as of June 30 is shown below:

COLERAIN CORPORATION

Balance Sheet

June 30

Assets

Cash $ 89,000

Accounts receivable 135,000

Inventory 61,000

Plant and equipment, net of depreciation 290,000

Total assets $ 575,000

Liabilities and Stockholders Equity

Accounts payable $ 70,000

Common shares 390,000

Retained earnings 115,000

Total liabilities and stockholders equity $ 575,000

Colerains managers have made the following additional assumptions and estimates:

a. Estimated sales for July, August, September, and October will be $245,000, $265,000, $255,000, and $275,000, respectively.

b. All sales are on credit and all credit sales are collected. Each months credit sales are collected 25% in the month of sale and 75% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

c. Each months ending inventory must equal 35% of the cost of next months 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 $74,000. Each month, $9,000 of this total amount is depreciation expense and the remaining $65,000 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.

2a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

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.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.