Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is availableDeacon CompanyBalance SheetMarch 31AssetsCash$62,000Accounts receivable 43,600Inventory 46,000Buildings and equipment, net of depreciation 107,000Total assets$258,600Liabilities and Stockholders’ EquityAccounts payable$63,600Common stock 70,000Retained earnings 125,000Total liabilities and stockholders’ equity$258,600Budgeted Income Statements      April…… May…… JuneSales$120,000……. $130,000 …….$150,000Cost of goods sold 72,000……  78,000……  90,000 Gross margin 48,000……  52,000……  60,000Selling and administrative expenses 24,900……  26,400……  29,400Net operating income$23,100 $25,600 $30,600Budgeting Assumptions:60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.Budgeted sales for July are $160,000.10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.Depreciation expense is $1,900 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.




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