Richards Company sells cellular phone accessories. The marketing director developed the following cost of goods sold budget for July, August, September, and October.

	July	August	September	October
Budgeted cost of goods sold	$85,000	$92,000	$79,000	$88,000

Richards had a beginning inventory balance of $17,000 on July 1st and a beginning balance in Accounts Payable of $19,490. The company desires to maintain an ending inventory balance equal to 20 percent of the next periods cost of goods sold. Richards makes all purchases on account. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the month following purchase.

Required:

1. Prepare an inventory purchases budget for July, August, and September.
2. Determine the amount of ending inventory Richards will report on the September pro forma balance sheet.
3. Prepare a schedule of cash payments for inventory for July, August, and September.
4. Determine the balance in accounts payable Richards will report on the September pro forma balance sheet.

Demonstration Problem 14-2 Workpapers

a.

	July	August	September
Budgeted COGS
Plus Desired Ending Inventory
Total Inventory Needed
Less Beginning Inventory
Required Purchases

b.

c.

	July	August	September
Pay 70% of current months purchases
Pay 30% of prior months purchases
Total budgeted disbursements

d.