Question

# Adams, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget...

Adams, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July.

 April May June July Budgeted cost of goods sold \$69,000 \$79,000 \$89,000 \$95,000

Adams had a beginning inventory balance of \$4,500 on April 1 and a beginning balance in accounts payable of \$14,300. The company desires to maintain an ending inventory balance equal to 10 percent of the next period’s cost of goods sold. Adams makes all purchases on account. The company pays 65 percent of accounts payable in the month of purchase and the remaining 35 percent in the month following purchase.

Required

1. Prepare an inventory purchases budget for April, May, and June.

2. Determine the amount of ending inventory Adams will report on the end-of-quarter pro forma balance sheet.

3. Prepare a schedule of cash payments for inventory for April, May, and June.

4. Determine the balance in accounts payable Adams will report on the end-of-quarter pro forma balance sheet.

a) Inventory purchases budget

 April May June Cost of goods sold 69000 79000 89000 Add: Desired ending inventory 7900 8900 9500 Total 76900 87900 98500 Less: Beginning inventory -4500 -7900 -8900 Purchase 72400 80000 89600

b) Ending inventory = \$9500

c) Schedule of Cash payment

 April May June Current month purchase 47060 52000 58240 Previous month purchase 14300 25340 28000 Total Cash payment 61360 77340 86240

Account payable = 89600*35% = 31360