Question

Following information relates to Acco Co.

a. Beginning cash balance on July 1: $50,000.
b. Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,720,000; June (actual), $1,200,000; and July (budgeted), $1,400,000.
c. Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $700,000; and July (budgeted), $750,000.
d. Budgeted cash disbursements for salaries in July: $275,000.
e. Budgeted depreciation expense for July: $36,000.
f. Other cash expenses budgeted for July: $200,000.
g. Accrued income taxes due in July: $80,000.
h. Bank loan interest paid July 31: $6,600.
Additional Information:
a. Cost of goods sold is 55% of sales.
b. Inventory at the end of June is $80,000 and at the end of July is $60,000.
c. Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31.
d. The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.
e. The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.
f. Income taxes payable on July 31 are $30,720, and the income tax rate applicable to the company is 30%.
g. The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.
Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

Answer 1

Acco Co.

Budgeted Income Statement for the month of July 31, 2020:

Sales Revenue $1,400,000

Cost of goods sold 770,000

Gross profit $630,000

Operating expenses:

Depreciation 36,000

Salaries 285,000

Bank loan interest 6,600

Other expenses 200,000 $527,600

Income before taxes $102,400

Taxes (30%) 30,720

Net income $71,680

Retained earnings 964,000

Retained earnings, July 31 $1,035,680

Balance Sheet as of July 31

Assets

Current assets:

Cash $122,400

Accounts receivable 1,220,000

Inventory 60,000

Total current assets $1,402,400

Equipment $1,600,000

Acc. Depreciation 316,000 $1,284,000

Total assets $2,686,400

Liabilities + Equity:

Current liabilities:

Accounts payable 300,000

Income taxes payable 30,720

Salaries payable 60,000 390,720

Bank loan 660,000

Total liabilities $1,050,720

Equity:

Common stock $600,000

Retained earnings 1,035,680 1,635,680

Total liabilities and equity $2,686,400

Step-by-step explanation:

a) Data and Calculations:

Cash Account

Account Titles Debit Credit

Beginning balance $50,000

Cash from customers 1,364,000

Payment to suppliers $730,000

Salaries 275,000

Other cash expenses 200,000

Income taxes 80,000

Bank loan interest 6,600

Estimated Ending Balance 122,400

Sales Budget: May June July Total

Actual Sales $1,720,000 $1,200,000 $1,400,000 $4,320,000

Cash Collections:

30% month of sale $516,000 $360,000 $420,000 1,296,000

50% next month 860,000 600,000 1,460,000

20% in second month 344,000 344,000

Total cash collections $516,000 $1,220,000 $1,364,000 $3,100,000

Accounts Receivable balance = $1,220,000 (4,320,000 - $3,100,000)

Purchases Budget: June July Total

$700,000 $750,000 $1,450,000

Cash Payment:

60% in the month $420,000 $450,000 $870,000

40% ffg month 280,000 280,000

Total payments $420,000 $730,000 $1,150,000

Accounts payable $300,000 ($1,450,000 - 1,150,000)

Other cash disbursements:

Salaries 275,000

Bank loan interest 6,600

Accrued Expenses:

Depreciation expense $36,000

Accumulated Depreciation $316,000 ($280,000 + 36,000)

Other cash expenses 200,000

Income taxes paid 80,000

Income Taxes:

Income tax payable $30,720

Common stock $600,000

Retained Earnings $964,000

Salaries Expense for July:

Salaries paid $275,000

Salaries expense payable in July 60,000

Salaries expense payable in June (50,000)

Salaries expense for July 285,000