Colerain Corporation is a merchandising company that is preparing a budget for t
ID: 2561579 • Letter: C
Question
Colerain Corporation is a merchandising company that is preparing a budget 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 Cash Accounts receivable Inventory Plant and equipment, net of depreciation $ 96,000 142,000 68,000 360,000 Total assets $666,000 Liabilities and Stockholders' Equity Accounts payable Common shares Retained earnings $ 77,000 460,000 129,000 Total liabilities and stockholders' equity $666,000 Colerain's managers have made the following additional assumptions and estimates a. Estimated sales for July, August, September, and October will be $280,000, $300,000, $290,000, and b. All sales are on credit and all credit sales are collected. Each month's credit sales are collected 20% in $310,000, respectively 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 C. Each month's ending inventory must equal 30% of the cost of next month's sales. The cost of goods sold is 65% 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 d. Monthly selling and administrative expenses are always $81,000. Each month, $7,000 of this total amount is depreciation expense and the remaining $74,000 relates to expenses that are paid in the month they are incurred e. 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 shares or repurchase its own shares during the quarter ended September 30Explanation / Answer
1. Schedule of Expected cash collections
2a. Merchandise purchases budget
2b. Schedule of cash disbursements for purchases
3. Income statement
Balance sheet
July Aug Sep Quarter From accounts receivable $142000 $142000 Sales on account: Jul 56000 $224000 280000 Aug 60000 $240000 300000 Sep 58000 58000 Total cash collections $198000 $284000 $298000 $780000