Question

Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: Sales are budgeted at $190,000 for December and $160,000 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 $15,200. Annual depreciation is $144,000, 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 14,000 Accounts receivable (net of $4,000 allowance for doubt ful accounts) 48,000 106,400 Inventory Property, plant, and equipment (net of $540,000 accumulated depreciation) 920,000 Total Liabilities and Stockholders' Equity Accounts payable $1,088,400 assets $ 134,000 800,000 154,400 Common stock Retained earnings Total liabilities and equity $1,088,400

Answer 1

1. Budgeted Cash Collection

The collection of 50% is done in the month of sales, 2% is deemed uncollectible and balance 48% in next month. If the payment is made within terms, 1% discount is allowed which is given below.

Schedule of cash receipts	December
Current accounts receivable ( 50% of 190,000)	$ 95,000
Less: Discount ( 1% of 95,000)	(950)
Add: Collection from prior month Accounts receivable (given in the statement of financial position)	48,000
Total collections	$ 142,050

2. Net accounts receivable, December 31

Accounts Receivable, December 31	$ 95,000
Less: allowance for doubtful debts at 2% of above	$ 1,900
Net accounts receivable, December 31	$ 93,100

3. Pre-tax operating income, December 31

Sales Revenue	$ 190,000
Gross margin ( 30% of sales)	57,000
Less: Operating expenses
Bad debts ( 2% of 190,000)	(3,800)
Expenses paid in cash	(15,200)
Monthly depreciation (144,000/12)	(12,000)
Income (loss) before income taxes	$ 26,000

4. Budgeted inventory December 31

Sales for the month of January	$ 160,000
Inventory on hand on December 31 (80% of 160,000)	$ 128,000

5. Budgeted purchases for December

Sales	$ 190,000
Add: Closing inventory	$ 128,000
Less: Opening inventory	$ 106,400
Purchases	$ 211,600

6. Budgeted accounts payable shall be $ 211,600 as all payment is done in the month following the purchase month

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