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Deacon Company is a merchandising company that is preparing a budget for the three-month period ended...

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available

Assets
Cash $ 60,200
Accounts receivable 30,800
Inventory 60,400
Buildings and equipment, net of depreciation 124,000
Total assets $ 275,400
Liabilities and Stockholders’ Equity
Accounts payable $ 71,100
Common stock 70,000
Retained earnings 134,300
Total liabilities and stockholders’ equity $ 275,400
Budgeted Income Statements
April May June
Sales $ 168,000 $ 178,000 $ 198,000
Cost of goods sold 100,800 106,800 118,800
Gross margin 67,200 71,200 79,200
Selling and administrative expenses 22,400 23,900 26,900
Net operating income $ 44,800 $ 47,300 $ 52,300

4. Prepare a budgeted balance sheet at June 30.

Budgeting Assumptions:

  1. 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.

  2. Budgeted sales for July are $208,000.

  3. 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.

  4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

  5. Depreciation expense is $1,100 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

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