Exercise 22-2

Merchandising: Preparation of purchases budgets (for three periods) P1

Walker Company prepares monthly budgets. The current budget plans for a September ending inventory of 30,000 units. Company policy is to end each month with merchandise inventory equal to a specified percent of budgeted sales for the following month. Budgeted sales and merchandise purchases for the three most recent months follow. (1) Prepare the merchandise purchases budget for the months of July, August, and September. (2) Compute the ratio of ending inventory to the next month's sales for each budget prepared in part 1. (3) How many units are budgeted for sale in October?

Exercise 22-4

Merchandising: Preparing a budgeted income statement and balance sheet P2

Use the information in Exercise 22-3 and the following additional information to prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

Cost of goods sold is 55% of sales.

Inventory at the end of June is $80,000 and at the end of July is $60,000.

Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31.

The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.

The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.

Income taxes payable on July 31 are $30,720, and the income tax rate applicable to the company is 30%.

The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.

Check Net income, $71,680; Total assets, $2,686,400

Exercise 22-5

Merchandising: Computing budgeted cash payments for purchases P1

Hardy Company's cost of goods sold is consistently 60% of sales. The company plans to carry ending merchandise inventory for each month equal to 20% of the next month's budgeted cost of good sold. All merchandise is purchased on credit, and 50% of the purchases made during a month is paid for in that month. Another 35% is paid for during the first month after purchase, and the remaining 15% is paid for during the second month after purchase. Expected sales are: August (actual), $325,000; September (actual), $320,000; October (estimated), $250,000; November (estimated), $310,000. Use this information to determine October's expected cash payments for purchases. (Hint: Use the layout of Exhibit 22.8, but revised for the facts given here.)

Check Budgeted purchases: August, $194,400; October, $157,200