Colerain Corporation is a merchandising company that is preparing a profit plan
ID: 2444897 • Letter: C
Question
Colerain Corporation is a merchandising company that is preparing a profit plan for the third quarter of the calendar year. The company’s balance sheet as of June 30 is shown below:
Colerain Corporation
Balance Sheet
June 30
ASSETS
Estimated sales for July, August, September, and October will be $240,000, $260,000, $250,000, and $270,000, respectively.
All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 40% in the month of sale and 60% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% 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.
Monthly selling and administrative expenses are always $50,000. Each month $4,000 of this total amount is depreciation expense and the remaining $46,000 relates to expenses that are paid in the month they are incurred.
The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.
Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30th.(Do not round intermediate calculations.)
Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30th. (Do not round intermediate calculations.)
Prepare an income statement for the quarter ended September 30th.(Do not round intermediate calculations.)
Prepare a balance sheet as of September 30th. (Do not round intermediate calculations.)
Cash $ 86,000 Accounts receivable 127,000 Inventory 50,400 Plant and equipment, net of depreciation 220,000 Total assets $ 483,400 Liabilities and Stockholders’ Equity Accounts payable $ 61,500 Common stock 360,000 Retained earnings 61,900 Total liabilities and stockholders’ equity $ 483,400Explanation / Answer
2a. Total requirements = COGS+ending inventory
Total needs - beginning inventory = Purchases
Merchandise purchase budget:
2b. cash disbursements for merchandise purchase:
50% of purchase amount is paid in the month itself, and 50% in the next month.
3. Income statement for quarter - September 30th:
Balance sheet:
July August September Quarter total October Sales 240,000 260,000 250,000 500,000 270,000 COGS (70% of sales) 168,000 182,000 175,000 350,000 189,000 Ending inventory (30% of next months COGS) 54,600 52,500 56,700 107,100 Total needs (COGS+ending inventory) 222,600 234,500 231,700 457,100 less: beginning inventory 50,400 54,600 52,500 105,000 Required purchases 172,200 179,900 179,200 352,100