Question

Ch 10, #9

Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow:

Sales are budgeted at $280,000 for December and $250,000 for January, terms 1/eom, n/60.

Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sale. Bad debts expense is included as part of operating expenses.

Gross margin is 30% of gross sales.

All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale.

Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase.

Other monthly operating expenses to be paid in cash total $22,400.

Annual depreciation is $198,000, one-twelfth of which is reflected as part of monthly operating expenses.

Goldberg Company’s statement of financial position at the close of business on November 30 follows:

GOLDBERG COMPANY

Statement of Financial Position

November 30, 2019

Assets

Cash $ 23,000

Accounts receivable (net of $4,000 allowance for doubtful accounts) 66,000

Inventory 156,800 Property, plant, and equipment (net of $630,000 accumulated depreciation) 1,010,000

Total assets $ 1,255,800

Liabilities and Stockholders’ Equity

Accounts payable $ 143,000

Common stock 800,000

Retained earnings 312,800

Total liabilities and equity $ 1,255,800

Required: 1. What is the total of budgeted cash collections for December? 2. How much is the book value of accounts receivable at the end of December? 3. How much is the income (loss) before income taxes for December? 4. What is the projected balance in inventory on December 31, 2019? 5. What are budgeted purchases for December? 6. What is the projected balance in accounts payable on December 31, 2019?

Answer 1

Part 1: Accounts receivable December sales 280000 0.50 total of budgeted cash collections December 66000 140000 206000 Part 2: book value of accounts receivable (280000*0.48) 134400 Part 3: sales Less : cost of goods sold (280000*0.7) Gross margin (280000 *0.30) Less : operating expense bad debts (280000*.02) other operating expense depreciation (198000/12) net income before tax 280000 196000 84000 5600 22400 16500 44500 39500 Part 4: projected balance ininventory on December31, 2019 (250000*0.8*0.7) 140000 Part 5: cost of goods sold Add :projected balance in inventory on December 31, 2019 Less: Inventory balance on November 30,2019 Budgeted purchases for December 196000 140000 -156800 179200 Part 6: projected balance in accounts payable on December 31, 2019 179200