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Case 10-59 Sports Fanatic Company is a retail sporting goods store that uses accrual accounting for its records. Information on Sports Fanatic's operations are as follows: 1. 2. 3. 4. 5. 6. 7. The store has budgeted sales at $220,000 for January and $200,000 for February. It expects collections to be 60% in the month of sale and 38% in the month following the sale. It expects 2% of sales to be uncollectible. Gross margin is 25% of sales. It purchases a total of 80% of the merchandise for resale in the month before the month of sale and 20% in the month of sale. It makes payments for merchandise in the month after it purchases it. Other expected monthly expenses to be paid in cash amount to $22,600. Annual depreciation is $216,000. Sports Fanatic's balance sheet at the close of business on December 31 follows. SPORTS FANATIC COMPANY Balance Sheet December 31 Assets Cash Accounts receivable (net of $4,000 allowance for uncollectible accounts) Inventory Property, plant, and equipment (net of 5680,000 of accumulated depreciation) Total assets Liabilities and Shareholders' Equity Accounts payable Common shares Retained earnings Total liabilities and shareholders' equity $22,000 76,000 132,000 870,000 $1,100,000 $162,000 800,000 138,000 $1,100,000

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Answer 1

Given: Budgeted sales ($) Fan :- January - $ 2201002 Februchy - $ 200.000 Gives -> Grous profit ratio = 251. cogs Janualy s $220,000 (-) 25 %. = - Fzbrucky = $ 2001.000 (-) 25% = $1651000 $1501000. → Cash collections of debtors in the For January mouth :- a. In the mouth itself $220,000 (x) 60% = $132,000 be In the mouth February → $2201000 () 36.6. - $ 831600 C. Bad debts (non vuoruy) – $270.100 X) 24. - $4400. > Purchases in mouth of January :- tator Tematy → $1654000 (x) 20% b. For February $ 150,000 (x) Bol - $33,000 = $ 120,000 > Depruiation for Tamusty - Amnual deprccation (4) 12 months - - $21641200 13) 12 months - $18eco. Payments for preschases made in Duember :- $1621000 → » January Collections Fah Sales made in December 4 January :- → December's $76.000 → Tamady's - $220.000 (x) 64 = $132,000 - Goods purchased For December mouth = $162,000 (-) $32,000 - 30,000$ : coas for beumbes - $397000X100/20 - $1501000. ... Baub= $1501000 (1) 33. 334. = $200498ela

AMG.C!) $2207000 $1651000 $ 551000 as as w der Sports Fanatic company Pro-Forma Income Statement -> For Janualy mouthe Particulars Amount (5) A. Sales less - Cost of Goods sold – Gross Profit Indivut Eupeuses:- a. Monthly lupuses $221600 bu Depresiastion for month $10,0 c. Bad debts $ 4400 - Be Total — Net propit (Aposs profit -- 8) I $ 451000 $10100 I Cash Budget for the mouth of January :- Particulars mert > Opening cash Balance Cash Recipts :- Debtors for January mouth Debtors for Duember mouth Totul Apter Ruepits Amt. ($). $221000 $ 1321000 $ 761000 $2301000 lessi- Cash Payments :— weditass for Decembes puselicases urditoss For Tawany paseliases Mouthly cash payments for the mouth - Total payments $30,000 $132.000 $22,600 $1844600 Net cash Balance at mouth, end $45.400

NO Sports Fanatic Company Pro Forma Balamu sheet - Joumaly 31 - Assets cash $45, 400 Accounts reuirable Carnet of Allowance $4400)_ 63.600 Inventory 120100 Propesty, plant and equipment (Ale.bep $6981000) 8521000 Total Assets $ 1,204.000 ont liabilities 4 Equity Accounts Payable common shares Retained carnings (I dono addition Janually profit). Total $ 153,000 8001000 I 148.000 $1,1011000 Note: - Inventary purchased far February @ $120,000 is in Stock. 4 Accounts Payable comprise of purchases made in January For Tarneasy @ 307 CC.o.g.s) 4. February @ 60% (0.0.0.3)
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