Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: 18 • Sales are budgeted at $251,000 for November, $291,000 for December, and $218,000 for January . Collections are expected to be 60% in the month of sale and 40% in the month following the sale. • The cost of goods sold is 75% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 90% 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 $20,000. • Monthly depreciation is $25,000. • Ignore taxes. $ Balance Sheet October 31 Assets Cash Accounts receivable Merchandise inventory Property, plant and equipment, net of $624,000 accumulated depreciation Total assets 26,000 81,000 169,425 946,000 $1,222, 425 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 247,000 748,000 227,425 $1,222,425 Retained earnings at the end of December would be: Multiple Choice 0 $251,925 O $272,325 O $227,425 O $272,925

Answer 1

	November	December
Sales	251000	291000
Less: Cost of goods sold	188250	218250
Less: Other monthly expenses	20000	20000
Less: Monthly Depreciation	25000	25000
Net income	17750	27750
Retained Earnings, October 31	227425
Add: Net income for November	17750
Add: Net income for December	27750
Retained Earnings at the end of December	272925
Option D $272,925 is correct