Question

10-49 Budgeting for a Merchandising Firm Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: • Sales are budgeted at $250,000 for December and $225,000 for January, terms lleom, 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 $25,000. • Annual depreciation is $216.000, 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 $ 30,000 Assets Cash Accounts receivable (net of $4,000 allowance for doubtful accounts) Inventory 76,000 132.000

Answer 1

1	Total Budgeted cash collections:
	Gross accounts receivable balance=76000+4000=$ 80000
	This represents the balance 50% to be paid for the November sales (50% already paid in November)
	Hence,November sales=80000/50%=$ 160000
	Then,collected in December=160000*48%=$ 76800
	December sales=$ 250000
	Then,collected in December=250000*50%=$ 125000
2	Book value of accounts receivable at the end of December:
	Accounts receivable (Gross)=50% of December month sales=250000*50%=$ 125000
	Bad debts written off=November month sales*2%=160000*2%=$ 3200
	Allowance for doubtful accounts at the end of December=Beginning balance-Bad debts written off=4000-3200=$ 800
	Book value of accounts receivable at the end of December=Accounts receivable (Gross)-Allowance for doubtful accounts at the end of December=125000-800=$ 124200
3	Income (loss) before income taxes:
						$	$
	Gross margin
	(Sales*30%)			(250000*30%)			75000
	Less:
	Operating expenses					25000
	Depreciation expense			(216000/12)		18000	43000
	Income (loss) before income taxes						32000
4	Projected balance in inventory on Dec 31,2019=Next month sales*80%=225000*80%=$ 180000
5	Budgeted purchases:
					$
	Sales				250000
	Add: Projected ending inventory				180000
					430000
	Less:Beginning inventory				132000
	Budgeted purchase				298000
6	Projected balance in accounts payable on Dec 31,2019=Budgeted purchase for December=$ 298000
	(Since,payment for purchase made in the next month of purchase)
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