Question

Exercise 9-29 Budgeted Financial Statements; Retailer (LO 9-3, 9-5) Handy Hardware is a retail hardware store. Information about the store's operations follows. • November 20x1 sales amounted to $480,000. • Sales are budgeted at $520,000 for December 20x1 and $480,000 for January 20x2. Collections are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly. • The store's gross margin is 25 percent of its sales revenue. A total of 80 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses paid in cash amount to $46,000. • Annual depreciation is $456,000. . . The company's balance sheet as of November 30, 20x1, is as follows: HANDY HARDWARE, INC. Balance Sheet November 30, 20x1 Assets Cash $ 52,000 Accounts receivable (net of $7,800 allowance for uncollectible accounts) 160,000 Inventory 360,000 Property, plant, and equipment (net of $1,260,000 accumulated depreciation) 1,804,000 Total assets $2,376,000 Liabilities and Stockholders' Equity Accounts payable $ 384,000 Common stock 1,670,000 Retained earnings 322,000 Total liabilities and owner's equity $2,376,000 Required: 1. Compute the budgeted cash collections for December 20x1. 2. Compute the budgeted income (loss) before income taxes for December 20x1. 3. Compute the projected balance in accounts payable on December 31, 20x1.

Answer 1

Part-1 Compute the budgeted cash collection for December 20x1

From november sales: 38% × $ 480000 = $182400

From December sales: 60% × $ 520000 = $ 312000

  

Total cash collections for december = $ 494400

Part-2 Compute the budgeted income(loss) before tax for december 20x1

Budgeted sales revenue $520000

Less: cost of good sold(75% of 520000) $390000

Gross margin 130000

Less: operating expenses

Bad debt expense(2% × $520000) $10400

Depreciation ($456000÷12) $38000

Other operating expenses $46000 $94400

Income before taxes $35600

Part-3 Compute the projected balance in accounts payable on December 20x1

Accounts payable balance,November30,20x1 $384000

Less: Payment on account in December (384000)

Add:

December purchase for december sales

$520000×75%=$390000×20% $78000

December purchases for january sales

$480000×75%=$360000×80% $288000

Accounts payable balance, December 31,20x1   $366000