Question

Question II: A. Fofoyaya Corporation is about to start operation on December 1, 2016. The Corporation has asked you as the controller/Treasurer to prepare the budgeted Income statement for the month of December based on the following assumption: 1. December sales are estimated at $300,000.00 of which 30% and 67% will be collected during the month of sales and the following month respectively. The remaining 3% is noted as bad debt. 2. Purchases are estimated at $200,000.00 of which 80% will be paid on the month of purchased and the other 20% will be paid the following month 3. The gross profit margin is estimated to be 40% of Sales 4. The company estimated fixed selling and administrative expenses to be 10% of Sales of which 60% is paid in the month of the expense and 40% the following month. The account does not include any depreciation amount. 5. The company debt service is estimated to be $7,000.00 of which $2,500.00 represents interest expense and the remainder is the principle payment. No payment is made on the interest expense during the month of December

Answer 1

A.

Budgeted Income statement

Fofoyaya Corporation

For the period end Dec 31, 2016

Sales	$300000
Cost of goods sold	(180000)
Gross margin	$120000
Operating Expenses:
Fixed selling & Admi. Exp.	(30000)
Operating income	$90000
Interest Expenses	(2500)
Income before Tax	$87500
Tax expenses @35%	(30625)
Net Income	$56875

.

Gross margin = 40% of sales, so Cost of goods sold = 100 - 40% = 60%

Cost of goods sold = 300000 * 60% = 180000

Fixed selling & Admi. Exp. = 10% of sales 300000 = 30000

*Assume that depreciation is already include in cost of goods sold, so not take in the account, because, In the question specified that it is not related to Fixed selling & Admi. Exp., that’s why, assume it is included in cost of goods sold.

.

B. Total cash payment schedule for Dec 31,2016

.	December
Purchase - 80%	$160000
Fixed selling & Admi. Exp.	18000
Total cash payment	$178000

Purchase = 80% of purchase are paid in the month of purchase = 200000 * 80% = 160000

*Fixed selling & Admi. Exp. = 30000, of which 60% are paid in the month = 30000 * 60% = 18000

.

C. Total cash Receipt schedule for Dec 31,2016

*Dec sales 30% are collected in the month of december = 300000 * 30% = 90000

.

.	December
Collection - 30%	$90000
Total cash Receipt	$90000