Question

Suppliers are paid $4.20 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below: 4% of sales Variable: Sales commissions Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 220,000 $ 20,000 $ 110,000 $ 8,000 $ 3,200 $ 16,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $17,000 in new equipment during May and $42,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $16,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: $ 76,000 Assets Cash Accounts receivable ($31,680 February sales; $387,840 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity 419,520 109,872 22,000 970,000 $ 1,597,392 $ 102,000 16,500 840,000 638,892 $ 1,597,392