Question

E22-28 Purchases and Cash Budgets

On July 1, MTC Wholesalers had a cash balance of $175,000 and accounts payable of $99,000. Actual sales for May and June, and budgeted sales for July, August, September, and October are:

Month	Actual Sales.	Month	Budgeted Sales
May	$150,000	July	$90,000
June	160,000	August	80,000
		September	100,000
		October	120,000

All sales are on credit with 75 percent collected during the month of sales, 20 percent collected during the next month, and 5 percent collected during the second month following the month of sale. Cost of goods sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month’s predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All purchases are paid for in the month after purchase. Operating costs are estimated at $28,000 each month and are paid during the month incurred.

Required

Prepare purchases and cash budgets for July, August, and September.

Answer 1