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Colerain Corporation is a merchandising company that is preparing a profit plan for

Colerain Corporation is a merchandising company that is preparing a profit plan for the third quarter of the calendar year. The company’s balance sheet as of June 30 is shown below:

Colerain Corporation
Balance Sheet
June 30

Assets

Cash $ 82,000

Accounts receivable 122,000

Inventory 47,775

Plant and equipment, net of depreciation 220,000

Total assets $ 471,775

Liabilities and Stockholders’ Equity

Accounts payable $ 61,700

Common stock 380,000

Retained earnings 30,075

Total liabilities and stockholders’ equity $ 471,775

Colerain’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 40% in the month of sale and 60% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 35% of the cost of next month’s sales. The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $65,000. Each month $4,000 of this total amount is depreciation expense and the remaining $61,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30th.
2. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30th

So what part of the exercise are you having problems with?

Preparing the merchandise budget, step by step.

Colerain Corporation Balance Sheet June 30
Assets
Cash	$ 82,000
Accounts receivable	122,000
Inventory	47,775
Plant and equipment, net of depreciation	220,000

Total assets	$ 471,775

Liabilities and Stockholders’ Equity
Accounts payable	$ 61,700
Common stock	380,000
Retained earnings	30,075

Total liabilities and stockholders’ equity	$ 471,775

1.	Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, respectively.
2.	All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 40% in the month of sale and 60% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
3.	Each month’s ending inventory must equal 35% of the cost of next month’s sales. The cost of goods sold is 65% of sales. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
4.	Monthly selling and administrative expenses are always $65,000. Each month $4,000 of this total amount is depreciation expense and the remaining $61,000 relates to expenses that are paid in the month they are incurred.
5.	The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.