Budget for a Merchandising Firm Kelly Company is a retail sporting goods store that...

Budget for a Merchandising Firm Kelly Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow:

• Sales are budgeted at $220,000 for December and $200,000 for January, terms 1/eom, n/60.• Collections are expected to be 60% in the month of sale and 38% 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 sales. Bad debts expense is included as part of operating expenses.

• Gross margin is 25% of 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.

• Kelly 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 $22,600.

• Annual depreciation is $216,000, one-twelfth of which is reflected as part of monthly operating expenses.

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

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, 2013?

5. What are budgeted purchases for December?

6. What is the projected balance in accounts payable on December 31, 2013?