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(Solved): You Have Been Asked To Prepare The Monthly Cash Budget For June And July For The Merchandise And Me...

You have been asked to prepare the monthly cash budget for June and July for the Merchandise and Mercantile Company. The company sells a unique product that is specially made for it by a major product manufacturer. The selling price is $18.00 per unit. All sales are on account.

Merchandise purchases are also on account. The policy of the company is to purchase sufficient quantity of product to ensure that each month’s ending inventory is 50% of the following month’s expected sales quantity.

The assignment file contains extracts from the general journal showing the journal entries pertaining to certain relevant transactions that have occurred and a set of entries the bookkeeper has provided that indicate the transactions expected to occur affecting cash, accounts payable, accounts receivable, and merchandise inventory accounts due to the projected sales revenues and projected merchandise purchases on the master budget. This analysis, with other additional data, is shown below. Assume today is May 31, 20X1, and that all dollar amounts are in thousands of dollars.

Information From Accounting Records and Planning Documents
Dr Cr
Extracts From the May 31 Adjusted Trial Balance
   May 31 Cash 3,700    
Merchandise inventory 8,400    
Accounts receivable 27,600    
Accounts payable 3,675    
Extracts From the General Journal
   April 30 Accounts receivable, April sales 34,000    
       Revenue 34,000    
Cash 16,660    
       Accounts receivable, April sales 16,660    
Bad debt expense, percentage of April sales 1,360    
       Allowance for doubtful accounts 1,360    
   May 31 Accounts receivable, May sales 56,700    
       Revenue 56,700    
Cash 41,383    
       Accounts receivable, April sales 13,600    
       Accounts receivable, May sales 27,783    
Merchandise inventory 14,700    
       Accounts payable, May purchases 14,700    
Accounts payable, May purchases 11,025    
       Cash, payment May purchases 11,025    
Projected Entries to the General Journal for Selected
Anticipated Transactions as per Master Budget
   June 30 Accounts receivable, June sales 75,600    
       Revenue 75,600    
Cost of sales for June 16,800    
       Inventory 16,800    
Accounts payable, May purchases 3,675    
       Cash, May purchases 3,675    
Cash 2,380    
       Accounts receivable, April sales 2,380    
July 31 Accounts receivable, July sales 64,080    
       Sales revenue 64,080    
August 31 Accounts receivable, August sales 82,080    
       Sales revenue 82,080    
Period fixed expenses, August 2,100    
       Accumulated depreciation, August 550    
       Cash 1,550    
Variable operating expenses (percent of sales) 8,208    
       Cash 8,208    
1. Calculate the cost per unit of merchandise inventory.
Cost Per Unit



Prepare a schedule showing the quantity of sales, ending inventory, beginning inventory and the quantity of product purchased in May, June, and July.

May June July
Ending Inventory
Beganing Inventory



Use the price per unit of inventory purchased and the quantity purchased to determine the expenditure for purchases in May, June, and July.

May June July
Cost of purchases



Calculate the percentages of sales the company expects to collect in the month of the sale and in the two months following the sale. What is the percentage of uncollectible sales? Assume that the percentages calculated for the month for which data is provided also apply to sales for any month of the year.

% Collected in april
%Collected in May
% collected in June
% Uncollectable
Total 100%


5. Calculate the percentages of May and June merchandise purchases the company expects to pay in June.
Merchandise puerchases % %
6. Calculate the balance in the accounts receivable on June 30. Assume all receivables are due to sales on account.

Calculate the balance in the cash account on June 30, based on the transactions projected to occur in June. Use the collection and disbursement percentages previously calculated. Assume that fixed expenses occur evenly in each month of the year.


Prepare a cash budget for July, in good form. Use the collection and disbursement percentages previously calculated. (Amounts to be deducted should be indicated by a minus sign.)



July cash collections
July cash disbursements for merchandise purchases
selling and administartive expenses

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