Question

Burrows Ranch is located in a small town in the southwest. Data regarding the store's operations follow: • Sales are budgeted at $230,000 for November, $210,000 for December, and $240,000 for January . Collections are expected to be 75% in the month of sale, 25% in the month following the sale. • The cost of goods sold is 70% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $25,000 • Monthly depreciation expense is $18,000. • Dividends declared during the month of November were $12,000. Balance Sheet October 31 Assets Cash Accounts receivable, net of allowance for uncollectible accounts...... Merchandise inventory........ Property, plant and equipment. net of $574,000 accumulated depreciation...... Total assets............ Liabilities and Stockholders' Equity Accounts payable..... Common stock... Retained earnings Total liabilities and stockholders' equity $ 27,000 79,000 101.400 1.082.000 $1.289.400 $ 169.000 740.000 380 400 $1.289.400

What is November's net income?

What are retained earnings at the end of November?

Answer 1

a) Net income : November

Sales	230000
Cost of goods sold (230000*70%)	-161000
Gross profit	69000
Operating expense (25000+18000)	-43000
Net income	26000

b) Ending retained earnings

Beginning retained earnings	380400
Add: Net income	26000
Less; Dividend	-12000
Ending retained earnings	394400