Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $280,000 for November, $290,000 for December, and $270,000 for January. Collections are expected to be 60% in the month of sale and 40% in the month following the sale. The cost of goods sold is 80% of sales. The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. The November beginning balance in the accounts receivable account is $63,000. The November beginning balance in the accounts payable account is $250,000. Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December.

Answer and Explanation:

a. The preparation of Schedule of Expected Cash Collections for November and December is shown below:-

Schedule of Expected Cash Collections

for the month of November and December

Particulars November December

Accounts receivable $63,000

Sales $280,000 $290,000

Expected cash collection

in the month of sale 60%

collection $168,000 $112,000

($280,000 * 60%) ($280,000 * 40%)

Next month 40%

cash collection $174,000

($290,000 * 60%)

Total cash collection $231,000 $286,000

b. The Preparation of Merchandise Purchases Budget for November and December is shown below:-

Particulars November December January

Cost of goods sold a

(80% of sale) $224,000 $232,000 $216,000

($280,000 * 80%) ($290,000 * 80%) ($270,000 * 80%)

Add: Ending

inventory b $92,800 $86,400

($232,000 * 40%) ($216,000 * 40%)

Total inventory $316,800 $318,400

(c = a + b)

Less: Opening inventory d $89,600 $92,800

($224,000 * 40%)

Material to be

purchased $227,200 $225,600

(e = c - d)