Deacon Company is a merchandising company that is preparing a budget for the second quarter of the calendar year. The following information is available. DEACON COMPANY Balance Sheet March 31 Assets Cash Accounts receivable Inventory Plant and equipment, net of depreciation Total assets Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings Total liabilities and shareholders' equity Budgeted Income Statements April Sales $ 92,000 Cost of goods sold Gross margin Selling and administrative expenses Operating income $ 59,000 26,000 42,000 105, 000 $ 232,000 $ 46,000 66,000 120, 000 $ 232,000 55, 200 36,800 13,000 $ 23,800 May $ 101,000 $ 60, 600 June $ 121,000 72, 600 40, 400 48, 400 16,000 18, 000 24, 400 $ 30, 400 Budgeting Assumptions: a. Sixty percent of sales are cash sales and 40 percent of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80 percent are collected in the month subsequent to the sale. b. Budgeted sales for July are $132,000 while the budgeted cost of goods sold is 60%. c. 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. d. Each month's ending merchandise inventory should equal $11,000 plus 50% of the next month's cost of goods sold. e. Depreciation expense is $1,300 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.