Question

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.

Answer 1

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