Wheeling Company is a merchandiser that provided a balance sheetas of September 30 as shown below:
Wheeling Company
Balance Sheet
September 30 |
| Assets | | |
| Cash | $ | 66,600 |
| Accounts receivable | | 138,000 |
| Inventory | | 64,800 |
| Buildings and equipment, net of depreciation | | 260,000 |
| Total assets | $ | 529,400 |
| Liabilities and Stockholders’ Equity | | |
| Accounts payable | $ | 159,400 |
| Common stock | | 216,000 |
| Retained earnings | | 154,000 |
| Total liabilities and stockholders’ equity | $ | 529,400 |
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The company is in the process of preparing a budget for Octoberand has assembled the following data:
Sales are budgeted at $480,000 for October and $490,000 forNovember. Of these sales, 35% will be for cash; the remainder willbe credit sales. Forty percent of a month’s credit sales arecollected in the month the sales are made, and the remaining 60% iscollected in the following month. All of the September 30 accountsreceivable will be collected in October.
The budgeted cost of goods sold is always 45% of sales and theending merchandise inventory is always 30% of the following month’scost of goods sold.
All merchandise purchases are on account. Thirty percent of allpurchases are paid for in the month of purchase and 70% are paidfor in the following month. All of the September 30 accountspayable to suppliers will be paid during October.
Selling and administrative expenses for October are budgeted at$89,000, exclusive of depreciation. These expenses will be paid incash. Depreciation is budgeted at $2,600 for the month.
Required:
1. Using the information provided, calculate or prepare thefollowing:
a. The budgeted cash collections for October.
b. The budgeted merchandise purchases for October.
c. The budgeted cash disbursements for merchandise purchases forOctober.
d. The budgeted net operating income for October.
e. A budgeted balance sheet at October 31.
2. Assume the following changes to the underlying budgetingassumptions:
(1) 50% of a month’s credit sales are collected in the month thesales are made and the remaining 50% is collected in the followingmonth, (2) the ending merchandise inventory is always 10% of thefollowing month’s cost of goods sold, and (3) 20% of all purchasesare paid for in the month of purchase and 80% are paid for in thefollowing month. Using these new assumptions, calculate or preparethe following:
a. The budgeted cash collections for October.
b. The budgeted merchandise purchases for October.
c. The budgeted cash disbursements for merchandise purchases forOctober.
d. Net operating income for the month of October.
e. A budgeted balance sheet at October 31.
