Question

Solomon, 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 $68,000 $78,000 $88,000 $94,000 Solomon had a beginning inventory balance of $3,900 on April 1 and a beginning balance in accounts payable of $15,500. The company desires to maintain an ending inventory balance equal to 20 percent of the next period’s cost of goods sold. Solomon makes all purchases on account. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the month following purchase.

a. Prepare an inventory purchases budget for April, May, and June.Budgeted Cost of Goods SoldPlus: Desired ending inventoryInventory neededLess: Beginning inventoryRequired purchases (on account)b. Determine the amount of ending inventory Peabody will report on the end-of-quarter pro forma balance sheet.Ending Inventory - ??c. Prepare a schedule of cash payments for inventory for April, May, and June.Payment of Current accounts payablePayment of Previouis accounts payableTotal budgeted payments for inventoryd. Determine the balance in accounts payable Peabody will report on the end-of-quarter pro forma balance sheet.Accounts payable = ??

Answer 1

a. Inventory purchases budget for April, May, and June.

April May June

Budgeted Cost of Goods Sold $68,000 $78,000 $88,000

Plus Desired ending inventory $15,600 $17,600 $18,800

Inventory needed $83,600 $95,600 $106,800

Less: Beginning inventory ($3,900) ($15,600) ($17,600)

Required purchases $79,700 $80,000 $89,200

b. the amount of ending inventory Peabody will report on the end-of-quarter is $18,800

c. schedule of cash payments for inventory for April, May, and June.

April May June

Balance Brought Forward $15,500 $23,910 $24,000

Credit Purchases $79,700 $80,000 $89,200

Inventory needed $95,200 $103,910 $113,200

Payment of Current accounts ($55,790) ($56,000) ($62,440)

Payment of Previous accounts ($15,500) ($23,910) ($24,000)

Balance Carried Forward $23,910 $24,000 $26,800

d. the balance in accounts payable Peabody will report on the end-of-quarter is $26,800

Explanation:

First Prepare an Inventory purchase budget, then use the amounts for credit purchases to prepare the Trade Payable Budget (in this case - the schedule of Cash Payments for Inventory.

The Balances Remaining at the End of the Last Month of the Quarter for Inventory : $18,800 and Accounts Payable : $26,800 is the amount that will appear in the firm`s Balance Sheet for that quarter.