Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th.
Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available
Deacon Company
Balance Sheet
March 31
AssetsCash$62,000
Accounts receivable 43,600
Inventory 46,000
Buildings and equipment, net of depreciation 107,000
Total assets$258,600
Liabilities and Stockholders’ Equity
Accounts payable$63,600
Common stock 70,000
Retained earnings 125,000
Total liabilities and stockholders’ equity$258,600
Budgeted Income Statements
April…… May…… June
Sales$120,000……. $130,000 …….$150,000
Cost of goods sold 72,000…… 78,000…… 90,000
Gross margin 48,000…… 52,000…… 60,000
Selling and administrative expenses 24,900…… 26,400…… 29,400
Net operating income$23,100 $25,600 $30,600
Budgeting Assumptions:
- 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.
- Budgeted sales for July are $160,000.
- 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.
- Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
- Depreciation expense is $1,900 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
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