Chapter 14, Problem 18P

Problem 7-18A Preparing an inventory purchases budget and schedule of cash payments

Humboldt, 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	$37,500	$34,000	$30,000	$45,000

Humboldt had a beginning inventory balance of $1,800 on April 1 and a beginning balance in accounts payable of $7,400. The company desires to maintain an ending inventory balance equal to 10 percent of the next period’s cost of goods sold. Humboldt makes all purchases on account. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the month following purchase.

Required

1. a. Prepare an inventory purchases budget for April, May, and June.
2. b. Determine the amount of ending inventory Humboldt will report on the end-of-quarter pro forma balance sheet.
3. c. Prepare a schedule of cash payments for inventory for April, May, and June.
4. d. Determine the balance in accounts payable Humboldt will report on the end-of-quarter pro forma balance sheet.