Wheeling Company is a merchandiser that provided a balance s

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:

The company is in the process of preparing a budget for October and has assembled the following data:

Sales are budgeted at $280,000 for October and $290,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.

The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.

All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.

Selling and administrative expenses for October are budgeted at $80,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,100 for the month.

Required:

1. Using the information provided, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. The budgeted net operating income for October.

e. A budgeted balance sheet at October 31.

2. Assume the following changes to the underlying budgeting assumptions:

(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. Net operating income for the month of October.

e. A budgeted balance sheet at October 31.

Wheeling Company Balance Sheet September 30
Assets
Cash	$	69,800
Accounts receivable		98,000
Inventory		37,800
Buildings and equipment, net of depreciation		310,000
Total assets	$	515,600
Liabilities and Stockholders’ Equity
Accounts payable	$	145,100
Common stock		216,000
Retained earnings		154,500
Total liabilities and stockholders’ equity	$	515,600

Solution

Ans 1 ans a October November Total sales T $280,000 290000 Credit sales C= (65%*T) $182,000 Schedule of Expected Cash Collections Cash Sales (35% for cash) T*35% $98,000 For september sales $98,000 For October sales (182000*40%) $72,800.0 Total Collections $268,800 ans b Merchandise Purchases Budget October November Budgeted Cost of Goods Sold (45%*sales) $126,000 $130,500 Add Desired Ending Inventory (30%*next COGS) $39,150 Total Needs $165,150 Less Beginning Inventory $37,800 Required Purcahses $127,350 ans c Schedule of Expected Cash Disbursements- Merchandise Purchases (30% in same month and 70% in next month) October Accounts payable $145,100 october purchases (127350*.3) $38,205 Total Disbursements $183,305 ans d Income statement sales $280,000 Less;: Cost of Good sold $126,000 Gross profit $154,000 Less: S & A exp 83100 Net Income $70,900 Balance sheet Current assets Cash (69800+268800-80000-183305) 75295 Accounts receivable (182000*60%) 109,200 Inventory 39,150 Total Current assets 223,645 Building and equipment, net (310000-3100) 306900 Total assets 530,545 Liabilities & stockholder equity Current liabilities Accounts payable 89,145 Total current liabilities 89,145 stockholder equity Common stock 216000 Retained earnings (154500+70900) $225,400 Totl stockholder equity $441,400 Total Liabilities & stockholder equity $530,545 ans 2 ans a October November Total sales T $280,000 290000 Credit sales C= (65%*T) $182,000 Schedule of Expected Cash Collections Cash Sales (35% for cash) T*35% $98,000 For september sales $98,000 For October sales (182000*50%) $91,000.0 Total Collections $287,000 ans b Merchandise Purchases Budget October November Budgeted Cost of Goods Sold (45%*sales) $126,000 $130,500 Add Desired Ending Inventory (10%*next COGS) $13,050 Total Needs $139,050 Less Beginning Inventory $37,800 Required Purcahses $101,250 ans c Schedule of Expected Cash Disbursements- Merchandise Purchases (30% in same month and 70% in next month) October Accounts payable $145,100 october purchases (101250*20%) $20,250 Total Disbursements $165,350 ans d Income statement sales $280,000 Less;: Cost of Good sold $126,000 Gross profit $154,000 Less: S & A exp 83100 Net Income $70,900 Balance sheet Current assets Cash (69800+287000-80000-165350) $111,450 Accounts receivable (182000*60%) 91,000 Inventory 13,050 Total Current assets 215,500 Building and equipment, net (310000-3100) 306900 Total assets 522,400 Liabilities & stockholder equity Current liabilities Accounts payable 81,000 Total current liabilities 81,000 stockholder equity Common stock 216000 Retained earnings (154500+70900) $225,400 Totl stockholder equity $441,400 Total Liabilities & stockholder equity $522,400 If any doubt please comment