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 doubtful accounts)		48,000
Inventory		106,400
Property, plant, and equipment (net of $540,000 accumulated depreciation)		920,000
Total assets	$	1,088,400
Liabilities and Stockholders’ Equity
Accounts payable	$	134,000
Common stock		800,000
Retained earnings		154,400
Total liabilities and equity	$	1,088,400

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, 2019?

5. What are budgeted purchases for December?

6. What is the projected balance in accounts payable on December 31, 2019?

(For all requirements, Do not round intermediate calculations.)

Answer is complete but not entirely correct.

1. Budgeted cash collections—December $143,000 selected answer incorrect 2. Net accounts receivable—December 31st $91,200 selected answer correct 3. Pre-tax operating income—Decemberselected answer correct $26,000 selected answer correct 4. Budgeted inventory, December 31st $89,600 selected answer correct 5. Budgeted purchases during December $116,200 selected answer correct 6. Budgeted accounts payable, December 31st $116,200selected answer correct

Answer 1

Solution:

Requirement 1 Calculation of Budgeted cash collections for December Collection of December Sales $95,000 Less: Discount on sales@1% $950 $94,050 Accounts Receivable $48,000 Budgeted Cash Collection $1,42,050 Requirement 2 Calculation of Book Value of Accounts Receivable Book Value ($190,000 * 48%) $91,200 Requirement 3 Calculation of Income (loss) before income taxes Gross Sales $1,90,000 Less: Sales Discount $950 Net Sales $1,89,050 Cost of Goods sold $1,32,050 Gross Margin ($190,000 * 30%) $57,000 Operating Expenses: Bad Debts ($190,000 * 2%) $3,800 Depreciation Expense $12,000 Other operating Expense $15,200 $31,000 Net Income before tax $26,000

Requirement 4 Calculation of Projected balance of inventory Budgted Cost of Goods Sold in January ($160,000 * 70%) (x) Desired percentage of mechandise required Balance of Inventory on December 31, 2019 $1,12,000 80% $89,600 Requirement 5 Calculation of Budgeted purchases for December Budgeted Cost of Goods Sold ($190,000 * 70%) $1,33,000 Add: Ending Inventory on December 2019 $89,600 Less: Beginning Inventory on November 2019 $1,06,400 Budgeted Purchases for December $1,16,200 Requirement 6 Projected balance in accounts payable $1,16,200