Colerain Corporation is a merchandising company that is preparing a budget for t
ID: 341760 • 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 $ 99,000 145,000 71,000 390,000 Total assets $705,000 Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings S 80,000 490,000 135,000 Total liabilities and shareholders' equity $705,000 Colerain's managers have made the following additional assumptions and estimates a. Estimated sales for July, August, September, and October will be $295,000, $315,000, $305,000, and b. All sales are on credit and all credit sales are collected. Each month's credit sales are collected 25% in $325,000, respectively the month of sale and 75% 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 40% 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 d. Monthly selling and administrative expenses are always $84,000. Each month, $7,000 of this total amount is depreciation expense and the remaining $77,000 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 shares or repurchase its own shares during the quarter ended September 30 e·Explanation / Answer
1) Schedule of Expected cash collections july August September Quarter From Accounts receivable 145,000 145,000 Sales on account July (295000*25%; 75%) 73750 221250 295000 August (315,000*25%;75%) 78750 236250 315000 September (305,000*25%) 76250 76250 total cash collections 218,750 300000 312500 831,250 Accounts receivable at sept end =305000*75%= 228750 2a) Merchandise purchases budget july august Sept Quarter Budgeted cost of goods sold (sales*70%) 206500 220500 213500 640500 Add:Ending inventory (COGS*40%) 88200 85400 91000 91,000 total needs 294700 305900 304500 731500 less:Beginning inventory -71,000 -88,200 -85,400 -71,000 Required purchases 223700 217700 219100 660500 2b) Schedule of Cash Disbursement for purchased july August Sept Quarter From accounts payable 80,000 80,000 purchase on account july (223700*50%;50%) 111850 111,850 223700 august (217700*50%*50%) 108850 108,850 217700 September (219100*50%) 109550 109550 total cash disbursement 191,850 220700 218400 630,950 Accounts payable at Sept end = 219,100*50% = $109550 3) Income statement Sales 915,000 less cost of goods sold 640500 Gross profit 274,500 less selling & administrative expense 231,000 less depreciation expense 21,000 net income 22,500 4) Balance sheet Assets cash (99000+831,250-630,950-231000)= 68,300 Accounts recivable 228750 inventory 91,000 plant & equipment ,net of dep(390,000-21000) 369000 total assets 757,050 liabilities and shareholders Equity Accounts payable 109,550 common shares 490,000 Retained earnings (135000+22500) 157,500 total liabilities & Shareholder's Equity 757,050