Expected Cash Collections and Disbursements; Income Statement;

Colerain Corporation is a merchandising company that is preparing a profit plan 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 76,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000

Plant and equipment, net of depreciation . . . . . . . . . . 250,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $482,000

Liabilities and Stockholders Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,100

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,000

Total liabilities and stockholders equity . . . . . . . . . . . . $482,000

Colerains managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $200,000, $250,000,

200,000, and $250,000, respectively.

2. All sales are on credit and all credit sales are collected. Each months 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.

3. Each months ending inventory must equal 30% 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.

4. Monthly selling and administrative expenses are always $80,000. Each month $10,000 of this total amount is depreciation expense and the remaining $70,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money, issue stock, or pay dividends during the third quarter.

Required:

Prepare a schedule of expected cash collections for July, August, and September.

July August Sept

a. Prepare a merchandise purchases budget for July, August, and September.

July August Sept

.

b. Prepare a schedule of cash disbursements relating for merchandise purchases for July, August, and September.

July August Sept

Prepare an income statement for the quarter ended September 30^th

income statement for the quarter ended September 30th
Sales
Cost of Goods Sold
Gross Margin
Selling and Administrative expenses
Net Income
Interest Expense
Net Income

Prepare a balance sheet as of September 30th.

a balance sheet as of September 30th.
Cash
Account Receivable
Inventory
Plant and Equipment, net of depreciation
Total Assets
Liabilities and stockholders equity
Account Payable
Common Stock
Retaining Earnings
Total Liabilities and Stockholders equity